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Filed Pursuant to Rule 424(b)(5)
Registration No. 333-208925
PROSPECTUS SUPPLEMENT
(To prospectus dated January 25, 2016)
8,500,000 Shares
CareTrust REIT, Inc.
Common Stock
We are offering 8,500,000 shares of our common stock, par value $0.01 per share (our “common stock”).
Our common stock is traded on the NASDAQ Global Select Market under the symbol “CTRE.” The last sale price for our
common stock on March 21, 2016, as reported on the NASDAQ Global Select Market (“NASDAQ”), was $11.79 per share.
We elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes commencing with the
taxable year ended December 31, 2014. We believe that we have been organized and have operated, and we intend to continue to
operate, in a manner to qualify for taxation as a REIT. To assist us in maintaining REIT status, among other purposes, our Articles of
Amendment and Restatement (our “charter”) contain certain restrictions relating to the ownership and transfer of our stock, including
provisions generally restricting a stockholder from owning more than 9.8% in value or in number of shares, whichever is more
restrictive, of the outstanding shares of our common stock, and generally restricting a stockholder from owning more than 9.8% in
value of the outstanding shares of all classes or series of our capital stock. See “Description of Capital Stock—Restrictions on
Transfer and Ownership of CareTrust Stock” in the accompanying prospectus.
We are an “emerging growth company” under the federal securities laws and, therefore, are subject to
reduced reporting requirements. Investing in our common stock involves risks. See “Risk Factors”
beginning on page S-12 of this prospectus supplement and page 3 of the accompanying prospectus and
the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2015, as
amended, which is incorporated by reference into this prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these
securities or determined that this prospectus supplement or the accompanying prospectus is accurate or complete. Any representation
to the contrary is a criminal offense.
Public offering price
Underwriting discount
Proceeds to us, before expenses
Per
share
Total
$ 11.3500
$ 0.4823
$ 10.8677
$ 96,475,000
$ 4,099,550
$ 92,375,450
The underwriters may also purchase up to an additional 1,275,000 shares of common stock from us, at the public offering price,
less the underwriting discount, within 30 days from the date of this prospectus supplement.
Delivery of the shares of common stock is expected to be made in New York, New York on or about March 28, 2016.
Joint Book-Running Managers
KeyBanc Capital Markets
Wells Fargo Securities
Raymond James
Barclays
Co-Managers
BMO Capital Markets
RBC Capital Markets
Canaccord Genuity
Capital One Securities
The date of this prospectus supplement is March 21, 2016.
Fifth Third Securities
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You should rely only on the information contained or incorporated by reference in this prospectus supplement or the
accompanying prospectus and, if applicable, any free writing prospectus that we have authorized for use in connection with this
offering. We have not, and the underwriters have not, authorized anyone to provide you with different or additional information. We
and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others
may give you. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the
information contained or incorporated by reference in this prospectus supplement, the accompanying prospectus and any free writing
prospectus that we have authorized for use in connection with this offering is accurate only as of the date on its respective cover, and
that any information we have incorporated by reference is accurate only as of the date of the document incorporated by reference,
unless we indicate otherwise. Our business, financial condition, results of operations and prospects may have changed since those
dates.
We are not, and the underwriters are not, making an offer to sell the securities described in this prospectus supplement in any
jurisdiction in which an offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified
to do so or to anyone to whom it is unlawful to make an offer or solicitation. Neither this prospectus supplement nor the
accompanying prospectus constitutes an offer, or an invitation on our behalf or on behalf of the underwriters or any agents, to
subscribe for and purchase any of the securities and may not be used for or in connection with any offer or solicitation by anyone, in
any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer
or solicitation.
TABLE OF CONTENTS
Prospectus Supplement
ABOUT THIS PROSPECTUS SUPPLEMENT
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
MARKET AND INDUSTRY DATA
FINANCIAL INFORMATION
PROSPECTUS SUPPLEMENT SUMMARY
RISK FACTORS
USE OF PROCEEDS
CAPITALIZATION
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
UNDERWRITING (CONFLICTS OF INTEREST)
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
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Prospectus
ABOUT THIS PROSPECTUS
WHERE YOU CAN FIND MORE INFORMATION
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
CARETRUST REIT, INC.
RISK FACTORS
USE OF PROCEEDS
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF WARRANTS
CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
U.S. FEDERAL INCOME TAX CONSIDERATIONS
PLAN OF DISTRIBUTION
LEGAL MATTERS
EXPERTS
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ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first is this prospectus supplement, which describes the specific terms of this offering. The
second part, the accompanying prospectus, gives more general information, some of which may not apply to this offering. This
prospectus supplement also adds to, updates and changes information contained in the accompanying prospectus. If the description of
the offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this
prospectus supplement. The accompanying prospectus is part of a registration statement that we filed with the Securities and
Exchange Commission (“SEC”) using a shelf registration statement. Under the shelf registration statement, from time to time, we may
offer and sell warrants, common stock or preferred stock, or any combination thereof, in one or more offerings.
It is important that you read and consider all of the information contained in this prospectus supplement and the accompanying
prospectus in making your investment decision. You should also read and consider the information in the documents to which we have
referred you in “Incorporation of Certain Information by Reference” on page S-iv of this prospectus supplement and “Where You Can
Find More Information” on page S-26 of this prospectus supplement.
In this prospectus supplement, unless otherwise indicated herein or the context otherwise indicates the terms “CareTrust,” “we,”
“us,” “our” and the “Company” refer to CareTrust REIT, Inc., together with its consolidated subsidiaries. With respect to REIT
matters, “we,” “our” and “us” refer only to CareTrust REIT, Inc. and not to its consolidated subsidiaries. References to “Ensign”
generally refer to The Ensign Group, Inc. and its consolidated subsidiaries, unless the context requires otherwise.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus supplement, the accompanying prospectus and the documents incorporated herein and
therein by reference may constitute forward-looking statements. Those forward-looking statements include all statements that are not
historical statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements regarding:
future financing plans, business strategies, growth prospects and operating and financial performance; expectations regarding the
making of distributions and the payment of dividends; and compliance with and changes in governmental regulations.
Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “may,” “will,” “would,” “could,” “should,”
“seek(s)” and similar expressions, or the negative of these terms, are intended to identify such forward-looking statements. These
statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties that
could lead to actual results differing materially from those projected, forecasted or expected. Although we believe that the assumptions
underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors
which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ
materially from our expectations include, but are not limited to:
•
the ability to achieve some or all of the benefits that we expect to achieve from the completed Spin-Off (as defined
below);
•
the ability and willingness of Ensign to meet and/or perform its obligations under the contractual arrangements that it
entered into with us in connection with the Spin-Off, including the Ensign Master Leases (as defined below), and any
of its obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities;
•
the ability of our tenants to comply with laws, rules and regulations in the operation of the properties we lease to them;
•
the ability and willingness of our tenants to renew their leases with us upon their expiration, and the ability to
reposition our properties on the same or better terms in the event of nonrenewal or in the event we replace an existing
tenant, and obligations, including indemnification obligations, we may incur in connection with the replacement of an
existing tenant;
•
the availability of and the ability to identify suitable acquisition opportunities and to acquire and lease the respective
properties on favorable terms;
•
the ability to generate sufficient cash flows to service our outstanding indebtedness;
•
access to debt and equity capital markets;
•
fluctuating interest rates;
•
the ability to retain our key management personnel;
•
the ability to qualify or maintain our status as a REIT;
•
changes in the U.S. tax law and other state, federal or local laws, whether or not specific to REITs; and
•
other risks inherent in the real estate business, including potential liability relating to environmental matters and
illiquidity of real estate investments.
We urge you to carefully consider these risks and review the additional disclosures we make concerning risks and other factors
that may materially affect the outcome of our forward-looking statements and our future business and operating results, including
those made under “Risk Factors” in this prospectus supplement and under “Item 1A. Risk Factors” in our Annual Report on Form
10-K for the year ended December 31, 2015, as amended, as such risk factors may be amended, supplemented or superseded from
time to time by other reports we file with the SEC in the future, including subsequent Annual Reports on Form 10-K and Quarterly
Reports on
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Form 10-Q. We caution you that any forward-looking statements made in this prospectus supplement, the accompanying prospectus
and the documents incorporated herein and therein by reference are not guarantees of future performance, events or results, and you
should not place undue reliance on these forward-looking statements, which speak only as of their respective dates. Except as required
by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect
any change in our expectations or any change in events, conditions or circumstances on which any statement is based.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate by reference” information into this prospectus supplement and the accompanying prospectus,
which means that we can disclose important information about us by referring you to another document filed separately with the SEC.
The information incorporated by reference herein and therein is considered to be a part of this prospectus supplement and the
accompanying prospectus. Information that we file with the SEC after the date of this prospectus supplement and that is incorporated
by reference in this prospectus supplement will automatically modify and supersede the information included or incorporated by
reference in this prospectus supplement and the accompanying prospectus to the extent that the subsequently filed information
modifies or supersedes the existing information. This prospectus supplement incorporates by reference the documents and reports
listed below (other than, in each case, the portions that are deemed to have been furnished and not filed in accordance with SEC rules):
•
our Annual Report on Form 10-K for the year ended December 31, 2015 (filed with the SEC on February 11, 2016),
Amendment No. 1 to our Annual Report on Form 10-K/A (filed with the SEC on March 16, 2016) and Amendment
No. 2 to our Annual Report on Form 10-K/A (filed with the SEC on March 18, 2016);
•
our Current Report on Form 8-K filed with the SEC on February 4, 2016; and
•
the description of our common stock contained in our Registration Statement on Form 10 initially filed with the SEC
on November 7, 2013 (File No. 001-36181), including any amendments or reports filed for the purpose of updating
such description.
We also incorporate by reference the information contained in all other documents we file with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (other than the portions that are
deemed to have been furnished and not filed in accordance with SEC rules, unless otherwise indicated therein) on or after the date of
this prospectus supplement and prior to the termination of the offering under this prospectus supplement.
We will provide to each person, including any beneficial owner, to whom a prospectus (or a notice of registration in lieu thereof)
is delivered a copy of any or all of the documents incorporated by reference into this prospectus (including any exhibits that are
specifically incorporated by reference in those documents) at no cost. Any such request can be made by writing or telephoning us at
the following address and telephone number:
CareTrust REIT, Inc.
905 Calle Amanecer, Suite 300
San Clemente, California 92673
(949) 542-3130
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MARKET AND INDUSTRY DATA
This prospectus supplement includes information with respect to market share and industry conditions, which are based upon
internal estimates and various third-party sources. While management believes that such data is reliable, we have not independently
verified any of the data from third-party sources nor have we ascertained the underlying assumptions relied upon therein. Similarly,
our internal research is based upon management’s understanding of industry conditions, and such information has not been verified by
any independent sources. Accordingly, our estimates involve risks and uncertainties and are subject to change based on various
factors, including those discussed under “Risk Factors” in this prospectus supplement and under “Item 1A. Risk Factors” in our
Annual Report on Form 10-K for the year ended December 31, 2015, as amended, as such risk factors may be amended, supplemented
or superseded from time to time by other reports we file with the SEC in the future, including any subsequent Annual Reports on Form
10-K and Quarterly Reports on Form 10-Q.
FINANCIAL INFORMATION
Prior to June 1, 2014, we were a wholly owned subsidiary of Ensign. On June 1, 2014, Ensign completed the separation of its
healthcare business and its real estate business into two separate and independent publicly traded companies through the distribution
of all of the outstanding shares of common stock of CareTrust to Ensign stockholders on a pro rata basis (the “Spin-Off”). Ensign
stockholders received one share of CareTrust common stock for each share of Ensign common stock held at the close of business on
May 22, 2014, the record date for the Spin-Off. The Spin-Off was effective from and after June 1, 2014, with shares of CareTrust
common stock distributed by Ensign on June 2, 2014.
CareTrust was formed on October 29, 2013 and had minimal activity prior to the Spin-Off. This prospectus supplement includes
and incorporates herein by reference consolidated and combined financial statements and information that reflect, for all periods
presented, the historical financial position, results of operations and cash flows of (i) the skilled nursing, assisted living and
independent living facilities that Ensign contributed to CareTrust immediately prior to the Spin-Off, (ii) the operations of the three
independent living facilities that CareTrust operated immediately following the Spin-Off and (iii) the new investments that CareTrust
has made after the Spin-Off. “Ensign Properties” is the predecessor of CareTrust, and its historical financial statements, for the periods
prior to the Spin-Off, have been prepared on a “carve-out” basis from Ensign’s consolidated financial statements using the historical
results of operations, cash flows, assets and liabilities attributable to such skilled nursing, assisted living and independent living
facilities, and include allocations of income, expenses, assets and liabilities from Ensign. These allocations reflect significant
assumptions. Although CareTrust’s management believes such assumptions are reasonable, the consolidated and combined financial
statements do not fully reflect what CareTrust’s financial position, results of operations and cash flows would have been had it been a
stand-alone company during the periods presented.
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PROSPECTUS SUPPLEMENT SUMMARY
The information below is a summary of the more detailed information included in or incorporated by reference in this
prospectus supplement and the accompanying prospectus. You should read carefully the following summary together with the more
detailed information contained in this prospectus supplement, the accompanying prospectus, any free writing prospectus we may
provide you in connection with this offering, and the information incorporated by reference herein and therein, including the risk
factors described on page S-12 of this prospectus supplement and on page 3 of the accompanying prospectus and the “Risk Factors”
section in our Annual Report on Form 10-K for the year ended December 31, 2015, as amended. This summary is not complete and
does not contain all of the information you should consider when making your investment decision. This prospectus supplement
relates only to the offering of common stock.
Our Company
We are an independent publicly-traded, self-administered, self-managed REIT primarily engaged in the ownership, acquisition
and leasing of healthcare-related properties. CareTrust was formed on October 29, 2013, as a wholly owned subsidiary of Ensign. On
June 1, 2014, Ensign completed the Spin-Off, which was effective from and after June 1, 2014, with shares of our common stock
distributed to Ensign stockholders on June 2, 2014. We hold substantially all of the real property that was previously owned by
Ensign. As of December 31, 2015, CareTrust’s real estate portfolio consisted of 122 skilled nursing facilities (“SNFs”), assisted living
facilities (“ALFs”) and independent living facilities (“ILFs”). Of these properties, 94 are leased to Ensign on a triple-net basis under
multiple long-term leases (each, an “Ensign Master Lease” and, collectively, the “Ensign Master Leases”) that have cross-default
provisions and are all guaranteed by Ensign, 14 are leased to affiliates of Pristine Senior Living (“Pristine”) under a long-term,
triple-net master lease that is guaranteed by Pristine and two of its principals, and 11 are leased to seven other tenants on a triple-net
basis. We also own and operate three ILFs. As of December 31, 2015, the 94 facilities leased to Ensign had a total of 10,121 beds and
units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington; the 14 facilities
leased to affiliates of Pristine had a total of 1,258 beds and units and are located in Ohio; and the 11 remaining leased properties had a
total of 765 beds and units and are located in Colorado, Florida, Georgia, Idaho, Minnesota, Virginia and Washington. The three ILFs
that we own and operate had a total of 264 units and are located in Texas and Utah. As of December 31, 2015, we had one other real
estate investment, consisting of an $8.5 million preferred equity investment.
We acquired the 14 facilities leased to affiliates of Pristine in an acquisition completed on October 1, 2015. We acquired the
facilities, which comprise a 14 facility skilled nursing and assisted living portfolio, from affiliates of Liberty Nursing Center, for
approximately $176.5 million. Since the Spin-Off through March 18, 2016, we have also acquired an additional 25 properties,
comprising 12 assisted living facilities and 13 skilled nursing facilities, for approximately $147.2 million.
We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements,
under which the tenant is solely responsible for the costs related to the property (including property taxes, insurance, and maintenance
and repair costs). We conduct and manage our business as one operating segment for internal reporting and internal decision making
purposes. We expect to grow our portfolio by pursuing opportunities to acquire additional properties that will be leased to a diverse
group of local, regional and national healthcare providers, which may include Ensign, as well as senior housing operators and related
businesses. We also anticipate diversifying our portfolio over time, including by acquiring properties in different geographic markets,
and in different asset classes.
We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31,
2014. We believe that we have been organized and have operated, and we intend to continue
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to operate, in a manner to qualify for taxation as a REIT. We operate through an umbrella partnership, commonly referred to as an
UPREIT structure, in which substantially all of our properties and assets are held through CTR Partnership, L.P. (the “Operating
Partnership”). The Operating Partnership is managed by CareTrust’s wholly owned subsidiary, CareTrust GP, LLC, which is the sole
general partner of the Operating Partnership. To maintain REIT status, we must meet a number of organizational and operational
requirements, including a requirement that we annually distribute to our stockholders at least 90% of our REIT taxable income,
determined without regard to the dividends paid deduction and excluding any net capital gains.
Our Industry
We operate as a REIT that invests in income-producing healthcare-related properties. We expect to grow our portfolio by
pursuing opportunities to acquire additional properties that will be leased to a diverse group of local, regional and national healthcare
providers, which may include Ensign, as well as senior housing operators and related businesses. We also anticipate diversifying our
portfolio over time, including by acquiring properties in different geographic markets and in different asset classes. Our portfolio
primarily consists of SNFs, ALFs and ILFs.
The skilled nursing industry has evolved to meet the growing demand for post-acute and custodial healthcare services generated
by an aging population, increasing life expectancies and the trend toward shifting of patient care to lower cost settings. The skilled
nursing industry has evolved in recent years, which we believe has led to a number of favorable improvements in the industry, as
described below:
•
Shift of Patient Care to Lower Cost Alternatives. The growth of the senior population in the United States
continues to increase healthcare costs. In response, federal and state governments have adopted cost-containment
measures that encourage the treatment of patients in more cost-effective settings such as SNFs, for which the
staffing requirements and associated costs are often significantly lower than acute care hospitals, inpatient
rehabilitation facilities and other post-acute care settings. As a result, SNFs are generally serving a larger
population of higher-acuity patients than in the past.
•
Significant Acquisition and Consolidation Opportunities. The skilled nursing industry is large and highly
fragmented, characterized predominantly by numerous local and regional providers. We believe this
fragmentation provides significant acquisition and consolidation opportunities for us.
•
Widening Supply and Demand Imbalance. The number of SNFs has declined modestly over the past several
years. According to the American Health Care Association, the nursing home industry was comprised of
approximately 15,655 facilities as of June 2015, as compared with over 16,700 facilities as of December 2000.
We expect that the supply and demand balance in the skilled nursing industry will continue to improve due to the
shift of patient care to lower cost settings, an aging population and increasing life expectancies.
•
Increased Demand Driven by Aging Populations and Increased Life Expectancy. As life expectancy continues
to increase in the United States and seniors account for a higher percentage of the total U.S. population, we
believe the overall demand for skilled nursing services will increase. At present, the primary market demographic
for skilled nursing services is individuals age 75 and older. According to the 2012 Current Population Survey by
the U.S. Census Bureau, there were over 41.5 million people in the United States in 2012 that were over 65 years
old. The 2010 U.S. Census estimates this group is one of the fastest growing segments of the United States
population and is expected to more than double between 2000 and 2030. According to the Centers for
Medicare & Medicaid Services, nursing home expenditures are projected to grow from approximately $155.6
billion in 2014 to approximately $274 billion in 2024, representing a compounded annual growth rate of 5.3%.
We believe that these trends will support an increasing demand for skilled nursing services, which in turn will
likely support an increasing demand for our properties.
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Portfolio Summary
We have a geographically diverse portfolio of properties, consisting of the following types:
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Skilled Nursing Facilities. SNFs are licensed healthcare facilities that provide restorative, rehabilitative and
nursing care for people not requiring the more extensive and sophisticated treatment available at acute care
hospitals. Treatment programs include physical, occupational, speech, respiratory and other therapies, including
sub-acute clinical protocols such as wound care and intravenous drug treatment. Charges for these services are
generally paid from a combination of government reimbursement and private sources. As December 31, 2015,
our portfolio included 100 SNFs, 13 of which include assisted or independent living operations.
•
Assisted Living Facilities. ALFs are licensed healthcare facilities that provide personal care services, support and
housing for those who need help with activities of daily living, such as bathing, eating and dressing, yet require
limited medical care. The programs and services may include transportation, social activities, exercise and fitness
programs, beauty or barber shop access, hobby and craft activities, community excursions, meals in a dining
room setting and other activities sought by residents. These facilities are often in apartment-like buildings with
private residences ranging from single rooms to large apartments. Certain ALFs may offer higher levels of
personal assistance for residents requiring memory care as a result of Alzheimer’s disease or other forms of
dementia. Levels of personal assistance are based in part on local regulations. As of December 31, 2015, our
portfolio included 18 ALFs, some of which also contain independent living units.
•
Independent Living Facilities. ILFs, also known as retirement communities or senior apartments, are not
healthcare facilities. The facilities typically consist of entirely self-contained apartments, complete with their
own kitchens, baths and individual living spaces, as well as parking for tenant vehicles. They are most often
rented unfurnished, and generally can be personalized by the tenants, typically an individual or a couple over the
age of 55. These facilities offer various services and amenities such as laundry, housekeeping, dining
options/meal plans, exercise and wellness programs, transportation, social, cultural and recreational activities,
on-site security and emergency response programs. As of December 31, 2015, our portfolio of four ILFs includes
one that is operated by Ensign and three that are operated by us.
Our portfolio of SNFs, ALFs and ILFs is broadly diversified by geographic location throughout the United States, with
concentrations in Texas and California. Our properties are grouped into four categories: (1) SNFs—these are properties that are
comprised exclusively of SNFs; (2) Skilled Nursing Campuses—these are properties that include a combination of SNFs and ALFs or
ILFs or both; (3) ALFs and ILFs—these are properties that include ALFs or ILFs, or a combination of the two; and (4) ILFs operated
by CareTrust—these are ILFs operated by CareTrust, unlike the other properties, which are leased to third-party operators.
Our Competitive Strengths
We believe that our ability to acquire, integrate and improve facilities is a direct result of the following key competitive
strengths:
Geographically Diverse Property Portfolio. As of December 31, 2015, our properties are located in 15 different states, with
concentrations in Texas and California. The properties in any one state do not account for more than 26% of our total beds and units.
We believe this geographic diversification will limit the effect of changes in any one market on our overall performance.
Long-Term, Triple-Net Lease Structure. All of our properties (except for the three ILFs that we own and operate) are leased to
our tenants under long-term, triple-net leases, pursuant to which the operators are
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responsible for all facility maintenance and repair, insurance required in connection with the leased properties and the business
conducted on the leased properties, taxes levied on or with respect to the leased properties and all utilities and other services necessary
or appropriate for the leased properties and the business conducted on the leased properties.
Financially Secure Primary Tenant. Ensign is an established provider of healthcare services with strong financial performance
and accounted for approximately 81% of our 2015 revenues, exclusive of tenant reimbursements. Ensign is subject to the reporting
requirements of the SEC and is required to file with the SEC annual reports containing audited financial information and quarterly
reports containing unaudited financial information. Ensign’s publicly available filings can be found at the SEC’s website at
www.sec.gov .
Ability to Identify Talented Operators. As a result of our management team’s operating experience and network of relationships
and insight, we believe that we are able to identify and pursue working relationships with qualified local, regional and national
healthcare providers and seniors housing operators. We expect to continue our disciplined focus on pursuing investment opportunities,
primarily with respect to stabilized assets but also some strategic investment in improving properties, while seeking dedicated and
engaged operators who possess local market knowledge, have solid operating records and emphasize quality services and outcomes.
We intend to support these operators by providing strategic capital for facility acquisition, upkeep and modernization. Our
management team’s experience gives us a key competitive advantage in objectively evaluating an operator’s financial position, care
and service programs, operating efficiencies and likely business prospects.
Experienced Management Team. Gregory K. Stapley, our President and Chief Executive Officer, has extensive experience in
the real estate and healthcare industries. Mr. Stapley has more than 29 years of experience in the acquisition, development and
disposition of real estate, including healthcare facilities and office, retail and industrial properties, including 14 years at Ensign. Our
Chief Financial Officer, William M. Wagner, has more than 23 years of accounting and finance experience, primarily in real estate,
including 11 years of experience working extensively for REITs. Most notably, he worked for both Nationwide Health Properties,
Inc., a healthcare REIT, and Sunstone Hotel Investors, Inc., a lodging REIT, serving as Senior Vice President and Chief Accounting
Officer of each company. David M. Sedgwick, our Vice President of Operations, is a licensed nursing home administrator with more
than 12 years of experience in skilled nursing operations, including turnaround operations, and trained over 100 Ensign nursing home
administrators while he was Ensign’s Chief Human Capital Officer. Our executives have years of public company experience,
including experience accessing both debt and equity capital markets to fund growth and maintain a flexible capital structure.
Flexible UPREIT Structure. We operate through an umbrella partnership, commonly referred to as an UPREIT structure, in
which substantially all of our properties and assets are held through the Operating Partnership. Conducting business through the
Operating Partnership will allow us flexibility in the manner in which we structure the acquisition of properties. In particular, an
UPREIT structure enables us to acquire additional properties from sellers in exchange for limited partnership units, which provides
property owners the opportunity to defer the tax consequences that would otherwise arise from a sale of their real properties and other
assets to us. As a result, this structure allows us to acquire assets in a more efficient manner and may allow us to acquire assets that the
owner would otherwise be unwilling to sell because of tax considerations.
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Business Strategies
Our primary goal is to create long-term stockholder value through the payment of consistent cash dividends and the growth of
our asset base. To achieve this goal, we intend to pursue a business strategy focused on opportunistic acquisitions and property
diversification. We also intend to further develop our relationships with tenants and healthcare providers with a goal to progressively
expand the mixture of tenants managing and operating our properties.
The key components of our business strategies include:
Diversify Asset Portfolio. We diversify through the acquisition of new and existing facilities from third parties and the expansion
and upgrade of current facilities. We employ what we believe to be a disciplined, opportunistic acquisition strategy with a focus on the
acquisition of skilled nursing, assisted living and independent living facilities, as well as medical office buildings, long-term acute
care hospitals and inpatient rehabilitation facilities. As we acquire additional properties, we expect to further diversify by geography,
asset class and tenant within the healthcare and healthcare-related sectors.
Maintain Balance Sheet Strength and Liquidity. We maintain a capital structure that provides the resources and flexibility to
support the growth of our business. We intend to maintain a mix of credit facility debt, mortgage debt and unsecured debt which,
together with our anticipated ability to complete future equity financings, we expect will fund the growth of our property portfolio.
Develop New Tenant Relationships. We cultivate new relationships with tenants and healthcare providers in order to expand the
mix of tenants operating our properties and, in doing so, to reduce our dependence on Ensign. We expect that this objective will be
achieved over time as part of our overall strategy to acquire new properties and further diversify our portfolio of healthcare properties.
Provide Capital to Underserved Operators. We believe there is a significant opportunity to be a capital source to healthcare
operators through the acquisition and leasing of healthcare properties to them that are consistent with our investment and financing
strategy at appropriate risk-adjusted rates of returns, which, due to size and other considerations, are not a focus for larger healthcare
REITs. We pursue acquisitions and strategic opportunities that meet our investing and financing strategy and that are attractively
priced, including funding development of properties through preferred equity or construction loans and thereafter entering into sale
and leaseback arrangements with such developers as well as other secured term financing and mezzanine lending. We utilize our
management team’s operating experience, network of relationships and industry insight to identify both large and small quality
operators in need of capital funding for future growth. In appropriate circumstances, we may negotiate with operators to acquire
individual healthcare properties from those operators and then lease those properties back to the operators pursuant to long-term
triple-net leases.
Fund Strategic Capital Improvements. We support operators by providing capital to them for a variety of purposes, including
capital expenditures and facility modernization. We expect to structure these investments as either lease amendments that produce
additional rents or as loans that are repaid by operators during the applicable lease term.
Pursue Strategic Development Opportunities. We work with operators and developers to identify strategic development
opportunities. These opportunities may involve replacing or renovating facilities that may have become less competitive. We also
identify new development opportunities that present attractive risk-adjusted returns. We may provide funding to the developer of a
property in conjunction with entering into a sale leaseback transaction or an option to enter into a sale leaseback transaction for the
property.
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Recent Developments
Recent Acquisitions
On February 1, 2016, we acquired a portfolio of nine skilled nursing facilities in Iowa that includes 518 skilled nursing beds for a
purchase price, inclusive of estimated transaction costs, of approximately $32.7 million (the “Iowa Acquisition”). The portfolio is
leased to Trillium Healthcare Group, LLC through an amendment to their existing master lease. On February 1, 2016, we also
acquired New Haven of San Angelo, a 30-unit assisted living and memory care facility in San Angelo, Texas for a purchase price,
inclusive of estimated transaction costs, of approximately $4.9 million (the “New Haven Acquisition”). The Iowa Acquisition and the
New Haven Acquisition were funded with borrowings of $40.0 million under our New Credit Facility.
On March 1, 2016, we acquired a portfolio of four assisted living facilities for a purchase price of approximately $27.0 million,
inclusive of estimated transaction costs (the “March Acquisition” and, together with the Iowa Acquisition and the New Haven
Acquisition, the “Recent Acquisitions”). Three of the properties, comprised of 366 units and located in Maryland, Indiana and
Wisconsin, are being leased back to an entity headed by two of the three principals in the seller. The fourth property, a 74-unit assisted
living facility in Florida, was added to our existing master lease with Better Senior Living Consulting, LLC. The March Acquisition
was funded with borrowings of $12.0 million under our New Credit Facility and cash on hand.
The Recent Acquisitions are expected to generate an annual cash yield of approximately 9.1%.
Pipeline Acquisitions
As of March 18, 2016, we had approximately $96.9 million, inclusive of estimated transaction costs, in investments subject to
signed purchase agreements that we expect to acquire during the second quarter of 2016 (the “Pipeline Acquisitions”). We anticipate
the Pipeline Acquisitions will generate an initial annual yield on cash rent of approximately 8.9%. After giving effect to the Recent
Acquisitions and the Pipeline Acquisitions, we expect the Company’s revenue concentration from its leases with Ensign and Pristine
will be reduced to approximately 60% and 20%, respectively. Completion of each of the Pipeline Acquisitions is subject to the
satisfaction of customary closing conditions.
The Refinancing Transaction
On February 1, 2016, we entered into the First Amendment (the “First Amendment”) to the credit and guaranty agreement, dated
August 5, 2015 (the “New Credit Facility”), by and among the Company, CareTrust GP, LLC, the Operating Partnership, as the
borrower, and certain of its wholly owned subsidiaries, KeyBank National Association, as administrative agent, an issuing bank and
swingline lender, and the lenders party thereto. Pursuant to the First Amendment, (i) commitments in respect of the unsecured
asset-based revolving facility were increased by $100.0 million to $400.0 million, (ii) a new $100.0 million non-amortizing unsecured
term loan (the “Term Loan”) was funded and (iii) the uncommitted incremental facility was increased by $50.0 million to $250.0
million. Approximately $95.0 million of the proceeds of the Term Loan were used to pay off and terminate our existing secured
mortgage indebtedness under the Fifth Amended and Restated Loan Agreement, dated May 30, 2014 (the “GECC Loan”), with
General Electric Capital Corporation, as agent and lender, and the other lenders party thereto (the foregoing transactions, the
“Refinancing”).
Our Corporate Information
We were formed as a Maryland corporation and a wholly-owned subsidiary of Ensign on October 29, 2013. On June 1, 2014, the
Spin-Off became effective and we became a separate and independent publicly-traded company. Our principal executive offices are
located at 905 Calle Amanecer, Suite 300, San Clemente, California 92673 and our telephone number is (949) 542-3130. We maintain
a website at www.caretrustreit.com . The information contained on or that can be accessed through our website is not incorporated
by reference into, and is not part of, this prospectus supplement, other than documents that we file with the SEC that are incorporated
by reference into this prospectus supplement.
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The Offering
Common stock offered by us
8,500,000 shares (9,775,000 shares if the underwriters exercise their option to
purchase additional shares of common stock in full).
Common stock to be outstanding after this
offering
57,041,246 shares (58,316,246 shares if the underwriters exercise their option
to purchase additional shares of common stock in full), based on 48,541,246
shares of our common stock outstanding as of March 4, 2016.
Option to purchase additional shares from us
We have granted the underwriters a 30-day option to purchase up to 1,275,000
additional shares of our common stock at the public offering price, less the
underwriting discount.
Use of proceeds by us
We estimate that the net proceeds to us from this offering, after deducting the
underwriting discount and estimated offering expenses payable by us, will be
approximately $91.9 million (or $105.7 million if the underwriters exercise
their option to purchase additional shares of common stock in full). We intend
to contribute the net proceeds from this offering to the Operating Partnership,
which will in turn apply the net proceeds to fund the Pipeline Acquisitions and
may, in the interim, use such proceeds to repay borrowings outstanding on our
New Credit Facility. See “Use of Proceeds.”
Conflicts of interest
As described in “Use of Proceeds,” we intend to contribute the net proceeds
from this offering to the Operating Partnership, which may in turn apply the
net proceeds to repay borrowings outstanding on our New Credit Facility.
Affiliates of certain of the underwriters are lenders under our New Credit
Facility and, in such capacity, may receive a portion of the net proceeds from
this offering. Such repayment to affiliates of certain of the underwriters may
constitute more than 5% of the net proceeds of this offering. Consequently,
this offering will be made in compliance with the applicable provisions of
Rule 5121 of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
The appointment of a “qualified independent underwriter” is not required in
connection with this offering, because a “bona fide public market,” as defined
in Rule 5121, exists for our common stock. See “Underwriting (Conflicts of
Interest).”
NASDAQ symbol
“CTRE”
Ownership and transfer restrictions
To assist us in qualifying as a REIT, among other purposes, our charter
contains certain restrictions relating to the ownership and transfer of our stock,
including provisions generally restricting a stockholder from owning more
than 9.8% in value or in number of shares, whichever is more restrictive, of
the outstanding shares of our common stock, and generally restricting a
stockholder from owning more than 9.8% in value of the outstanding shares of
all classes or
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series of our capital stock. See “Description of Capital Stock—Restrictions on
Transfer and Ownership of CareTrust Stock” in the accompanying prospectus.
Risk Factors
Investing in our common stock involves risks. See “Risk Factors” beginning
on page S-12 of this prospectus supplement and page 3 of the accompanying
prospectus and the “Risk Factors” section in our Annual Report on Form 10-K
for the year ended December 31, 2015, as amended, and the other information
included in or incorporated by reference in this prospectus supplement and the
accompanying prospectus in connection with this offering, to read about
factors you should consider before buying our common stock.
Except as otherwise indicated, all information in this prospectus supplement assumes no exercise by the underwriters of their option to
purchase an additional 1,275,000 shares of common stock from us.
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Summary Historical Financial Data
The following table sets forth summary financial data for CareTrust on a historical basis for the periods presented. Prior to the
Spin-Off, we did not operate our business separately from Ensign. We use the term “Ensign Properties” to mean the carve-out
business of the entities that owned the SNFs, ALFs and ILFs that we now own following the Spin-Off, and the operations of the three
ILFs that we operate following the Spin-Off. Ensign Properties is the predecessor of CareTrust.
The summary historical financial data as of December 31, 2015 and 2014 and for each of the years ended December 31, 2015,
2014 and 2013 has been derived from CareTrust’s audited consolidated and combined financial statements included in our Annual
Report on Form 10-K for the year ended December 31, 2015, as amended, which is incorporated by reference into this prospectus
supplement. Our management believes the assumptions underlying Ensign Properties’ combined financial statements and
accompanying notes are reasonable. However, such combined financial statements may not necessarily reflect our financial condition
and results of operations in the future, or what they would have been had we been a separate, stand-alone company during the periods
presented. The unaudited condensed consolidated and combined financial statements reflect, in the opinion of management, all
adjustments necessary for the fair presentation of the financial condition and results of operations for such periods.
The following should be read in conjunction with CareTrust’s audited consolidated and combined financial statements and
accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual
Report on Form 10-K for the year ended December 31, 2015, as amended.
For the Year Ended
December 31,
2015
2014
2013
(in thousands, except per share data)
Income statement data:
Total revenues
Income (loss) before provision for income taxes
Net income (loss)
Earnings (loss) per common share:
Basic
Diluted
Weighted-average number of common shares:
Basic
Diluted
Balance sheet data:
Total assets
Total liabilities
Total equity
Other financial data:
Dividends declared per common share
FFO(1)
FAD(1)
$ 74,951
10,034
10,034
$ 58,897
(8,143)
(8,143)
0.26
0.26
(0.36)
(0.36)
$
48,796
(272)
(395)
(0.02)
(0.02)
37,380
37,380
22,788
22,788
$ 673,166
410,878
262,288
$ 475,140
361,678
113,462
$
428,515
265,826
162,689
$
$
$
—
23,023
23,740
0.64
34,109
37,831
6.01
14,853
16,559
22,228
22,228
(1) We believe that net income, as defined by U.S. generally accepted accounting principles (“GAAP”), is the most
appropriate earnings measure. We also believe that Funds From Operations (“FFO”), as defined by the National
Association of Real Estate Investment Trusts (“NAREIT”), and Funds Available for Distribution (“FAD”) are important
non-GAAP supplemental measures of operating performance for a REIT. FFO is defined as net income (loss) computed in
accordance with GAAP, excluding gains or losses from real estate dispositions, real estate depreciation and amortization
and impairment charges, and adjustments for unconsolidated partnerships and joint ventures. FAD is defined as FFO
excluding non-cash expenses, such
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as stock-based compensation expense, amortization of deferred financing costs and the effects of straight-line rent. We
believe that the use of FFO and FAD, combined with the required GAAP presentations, improves the understanding of
operating results of REITs among investors and makes comparisons of operating results among such companies more
meaningful. We consider FFO and FAD to be useful measures for reviewing comparative operating and financial
performance because, by excluding gains or losses from real estate dispositions, impairment charges and real estate
depreciation and amortization, and, for FAD, by excluding non-cash expenses such as stock-based compensation expense
and amortization of deferred financing costs, FFO and FAD can help investors compare our operating performance
between periods and to other REITs. However, our computation of FFO and FAD may not be comparable to FFO and
FAD reported by other REITs that do not define FFO in accordance with the current NAREIT definition or that interpret
the current NAREIT definition or define FAD differently than we do. Further, FFO and FAD do not represent cash flows
from operations or net income as defined by GAAP and should not be considered an alternative to those measures in
evaluating our liquidity or operating performance.
The following table reconciles our calculations of FFO and FAD to net income (loss), the most directly comparable GAAP
financial measure, for the years ended December 31, 2015, 2014 and 2013:
2015
Net income (loss)
Real estate related depreciation and amortization
$ 10,034
24,075
FFO
Amortization of stock-based compensation
Amortization of deferred financing costs
FAD
For the Year Ended
December 31,
2014
(in thousands)
$ (8,143)
22,996
2013
$
(395)
23,418
34,109
1,522
2,200
14,853
154
1,552
23,023
18
699
$ 37,831
$ 16,559
$ 23,740
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of Our Revenues
and Expenses” in our Annual Report on Form 10-K for the year ended December 31, 2015, as amended, which is incorporated by
reference into this prospectus supplement, for a discussion of our general and administrative expenses and interest expense amounts.
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Pro Forma Portfolio Summary
The following table displays the geographic distribution of our facilities by property type and the related number of operational
beds and units available for occupancy by asset class as of December 31, 2015 on a pro forma basis giving effect to the Recent
Acquisitions.
Total(1)
State
Properties
SNFs
Beds/
Units
Facilities
ALFs and ILFs(1)
Skilled Nursing Campuses
Beds
CA
TX
AZ
UT
CO
ID
WA
NV
NE
IA
MN
VA
GA
FL
OH
IN
WI
MD
18
28
10
12
6
9
8
3
5
14
1
1
1
3
14
1
1
1
1,991
3,271
1,327
1,305
633
567
754
304
366
874
28
39
105
208
1,258
146
100
120
14
22
7
9
4
5
7
1
3
12
—
—
1
—
11
—
—
—
1,465
2,699
799
907
380
408
652
92
220
703
—
—
105
—
870
—
—
—
Total
136
13,396
96
9,300
SNF
Beds
Campuses
2
1
1
1
—
1
—
—
2
2
—
—
—
—
3
—
—
—
13
ALF
Beds
ILF
Units
Facilities
158
123
162
235
—
45
—
—
105
109
—
—
—
—
232
—
—
—
121
77
100
37
—
24
—
—
41
62
—
—
—
—
100
—
—
—
24
20
—
—
—
—
—
—
—
—
—
—
—
—
56
—
—
—
1,169
562
100
Units
2
5
2
2
2
3
1
2
1
1
1
223
352
266
126
253
90
102
212
—
—
28
39
—
208
—
146
100
120
27
2,265
—
—
1
1
—
3
—
(1) ALFs and ILFs include ALFs or ILFs, or a combination of the two, operated by our tenants and three ILFs operated by us.
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RISK FACTORS
Before purchasing shares of our common stock, you should consider carefully the following risk factors, as well as the
information under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as
amended, and the other information in this prospectus supplement and the documents incorporated by reference in this prospectus
supplement, each of which could materially adversely affect our operating results and financial condition. See “Where You Can Find
More Information” and “Incorporation of Certain Information By Reference.” Each of such risks could result in a decrease in the
value of our common stock and your investment therein. Although we have tried to discuss what we believe are key risk factors, please
be aware that other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict those
risks or estimate the extent to which they may affect our financial performance or the value of our common stock.
Risks Related to This Offering and Our Common Stock
Our charter restricts the ownership and transfer of our outstanding stock, which may have the effect of delaying, deferring or
preventing a transaction or change of control of our company.
In order for us to qualify to be taxed as a REIT, not more than 50% in value of our outstanding shares of stock may be owned,
beneficially or constructively, by five or fewer individuals at any time during the last half of each taxable year after our first taxable
year as a REIT. Additionally, at least 100 persons must beneficially own our stock during at least 335 days of a taxable year (other
than our first taxable year as a REIT). Our charter, with certain exceptions, authorizes our board of directors to take such actions as are
necessary and desirable to preserve our qualification as a REIT. Our charter also provides that, unless exempted by the board of
directors, no person may own more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares
of our common stock, or more than 9.8% in value of the outstanding shares of all classes or series of our stock. The constructive
ownership rules are complex and may cause shares of stock owned directly or constructively by a group of related individuals or
entities to be constructively owned by one individual or entity. These ownership limits could delay or prevent a transaction or a
change in control of us that might involve a premium price for shares of our stock or otherwise be in the best interests of our
stockholders. The acquisition of less than 9.8% of our outstanding stock by an individual or entity could cause that individual or entity
to own constructively in excess of 9.8% in value of our outstanding stock, and thus violate our charter’s ownership limit. Our charter
also prohibits any person from owning shares of our stock that would result in our being “closely held” under Section 856(h) of the
Code or otherwise cause us to fail to qualify to be taxed as a REIT. In addition, our charter provides that (i) no person shall
beneficially or constructively own shares of stock to the extent such beneficial or constructive ownership of stock would result in us
failing to qualify as a “domestically controlled qualified investment entity” within the meaning of Section 897(h) of the Code, and
(ii) no person shall beneficially or constructively own shares of stock to the extent such beneficial or constructive ownership would
cause us to own, beneficially or constructively, more than a 9.9% interest (as set forth in Section 856(d)(2)(B) of the Code) in a tenant
of our real property. Any attempt to own or transfer shares of our stock in violation of these restrictions may result in the transfer
being automatically void.
Maryland law and provisions in our charter and bylaws may delay or prevent takeover attempts by third parties and therefore
inhibit our stockholders from realizing a premium on their stock.
Our charter and Amended and Restated Bylaws (our “bylaws”) and Maryland law contain provisions that are intended to deter
coercive takeover practices and inadequate takeover bids and to encourage prospective acquirers to negotiate with our board of
directors rather than to attempt a hostile takeover. Our charter and bylaws, among other things, (1) contain transfer and ownership
restrictions on the percentage by number and value of outstanding shares of our stock that may be owned or acquired by any
stockholder; (2) provide that stockholders are not allowed to act by non-unanimous written consent; (3) permit the board of directors,
without further action of the stockholders, to amend the charter to increase or decrease the aggregate number of
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authorized shares or the number of shares of any class or series that we have the authority to issue; (4) permit the board of directors to
classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified
or reclassified shares; (5) permit only the board of directors to amend the bylaws; (6) establish certain advance notice procedures for
stockholder proposals, and provide procedures for the nomination of candidates for our board of directors; (7) provide that special
meetings of stockholders may only be called by the Company or upon written request of stockholders entitled to be at the meeting;
(8) provide that a director may only be removed by stockholders for cause and upon the vote of two-thirds of the outstanding shares of
common stock; (9) provide for supermajority approval requirements for amending or repealing certain provisions in our charter; and
(10) provide for a classified board of directors of three separate classes with staggered terms. In addition, specific anti-takeover
provisions of the Maryland General Corporation Law could make it more difficult for a third party to attempt a hostile takeover. These
provisions include:
•
“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and
an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power
of our shares or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an
interested stockholder, and thereafter impose special appraisal rights and special stockholder voting requirements on
these combinations; and
•
“control share” provisions that provide that “control shares” of our company (defined as shares which, when
aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing
ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect
acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by our
stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all
interested shares.
We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential
acquirors to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition
proposal. These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer
may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is
not in our best interests. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.
The market price and trading volume of our common stock may fluctuate.
The market price of our common stock may fluctuate, depending upon many factors, some of which may be beyond our control,
including, but not limited to:
•
a shift in our investor base;
•
our quarterly or annual earnings, or those of other comparable companies;
•
actual or anticipated fluctuations in our operating results;
•
our ability to obtain financing as needed;
•
changes in laws and regulations affecting our business;
•
changes in accounting standards, policies, guidance, interpretations or principles;
•
announcements by us or our competitors of significant investments, acquisitions or dispositions;
•
the failure of securities analysts to cover our common stock after the Spin-Off;
•
changes in earnings estimates by securities analysts or our ability to meet those estimates;
•
the operating performance and stock price of other comparable companies;
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•
overall market fluctuations; and
•
general economic conditions and other external factors.
Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular
company. These broad market fluctuations may adversely affect the trading price of our common stock.
Sales or issuances of shares of our common stock could adversely affect the market price of our common stock.
Sales of substantial amounts of shares of our common stock in the public market, or the perception that such sales might occur,
could adversely affect the market price of our common stock. The issuance of our common stock in connection with property,
portfolio or business acquisitions or the exercise of outstanding stock options or otherwise could also have an adverse effect on the
market price of our common stock.
We and our executive officers and directors have agreed that, for a period of 45 days from the date of this prospectus, we and
they will not, without the prior written consent of KeyBanc Capital Markets Inc., Wells Fargo Securities, LLC and BMO Capital
Markets Corp., dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock. KeyBanc
Capital Markets Inc., Wells Fargo Securities, LLC and BMO Capital Markets Corp., in their sole discretion, may release any of the
securities subject to these lock-up agreements at any time without notice. If the restrictions under the lock-up agreements are waived,
our common stock may become available for sale into the market, subject to applicable law, which could reduce the market price for
our common stock.
We are an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may
make our common stock less attractive to investors.
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as
long as we continue to be an emerging growth company, we may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies. As an emerging growth company, we are not required to, among other
things, (1) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control
over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”),
(2) comply with any new rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit
firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the
audit and the financial statements of the issuer, (3) comply with any new audit rules adopted by the Public Company Accounting
Oversight Board after April 5, 2012 unless the SEC determines otherwise, (4) comply with any new or revised financial accounting
standards applicable to public companies until such standards are also applicable to private companies under Section 102(b)(1) of the
JOBS Act, (5) provide certain disclosure regarding executive compensation required of larger public companies in our periodic
reports, proxy statements and registration statements, or (6) hold a nonbinding advisory vote on executive compensation and obtain
stockholder approval of any golden parachute payments not previously approved. Accordingly, the information that we provide
stockholders in our filings with the SEC may be different than what is available with respect to other public companies. If some
investors find our common stock less attractive as a result of our reliance on these exemptions, there may be a less active trading
market for our common stock and our stock price may be more volatile and adversely affected.
In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended
transition period provided in Section 13(a) of the Exchange Act for complying with new or revised accounting standards applicable to
public companies. In other words, an emerging growth company can delay the adoption of certain accounting standards until those
standards would otherwise apply to private companies. We
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have elected to take advantage of this extended transition period. As a result of this election, our financial statements may not be
comparable to companies that comply with public company effective dates for such new or revised standards. We may elect to comply
with public company effective dates at any time, and such election would be irrevocable pursuant to Section 107(b) of the JOBS Act.
We will remain an emerging growth company until the earliest of (1) the last day of the first fiscal year in which our total annual
gross revenues exceed $1 billion, (2) the date on which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under
the Exchange Act or any successor statute, which would occur if the market value of our common stock that is held by non-affiliates
exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, (3) the date on which we have
issued more than $1 billion in non-convertible debt during the preceding three-year period, and (4) the end of the fiscal year following
the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended (the “Securities Act”).
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act
could materially and adversely affect our business and the market price of our common stock.
Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial
reporting, which require significant resources and management oversight. Internal control over financial reporting is complex and may
be revised over time to adapt to changes in our business, or changes in applicable accounting rules. We cannot assure you that our
internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect
to a prior period for which we had previously believed that internal controls were effective. Matters impacting our internal controls
may cause us to be unable to report our financial data on a timely basis, or may cause us to restate previously issued financial data,
and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of
applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor
confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to
suffer if we or our independent registered public accounting firm reports a material weakness in our internal control over financial
reporting. This could materially adversely affect us by, for example, leading to a decline in the market price for our common stock and
impairing our ability to raise capital.
As an emerging growth company, we are excluded from Section 404(b) of the Sarbanes-Oxley Act, which otherwise would
require our auditors to formally attest to and report on the effectiveness of our internal control over financial reporting. If we cannot
maintain effective disclosure controls and procedures or favorably assess the effectiveness of our internal control over financial
reporting, or, once we are no longer an “emerging growth company,” our independent registered public accounting firm cannot
provide an unqualified attestation report on the effectiveness of our internal control over financial reporting, investor confidence and,
in turn, the market price of our common stock could decline.
We cannot assure you of our ability to pay dividends in the future.
We expect to make quarterly dividend payments in cash, but in no event will the annual dividend be less than 90% of our REIT
taxable income on an annual basis, determined without regard to the dividends paid deduction and excluding any net capital gains. Our
ability to pay dividends may be adversely affected by a number of factors, including the risk factors described in this prospectus.
Dividends are authorized by our board of directors and declared by us based upon a number of factors, including actual results of
operations, restrictions under Maryland law or applicable debt covenants, our financial condition, our taxable income, the annual
distribution requirements under the REIT provisions of the Code, our operating expenses and other factors our directors deem
relevant. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash dividends or
year-to-year increases in cash dividends in the future.
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Furthermore, while we are required to pay dividends in order to maintain our REIT status, we may elect not to maintain our
REIT status, in which case we would no longer be required to pay such dividends. Moreover, even if we do elect to maintain our REIT
status, after completing various procedural steps, we may elect to comply with the applicable distribution requirements by distributing,
under certain circumstances, a portion of the required amount in the form of shares of our common stock in lieu of cash. If we elect
not to maintain our REIT status or to satisfy any required distributions in shares of common stock in lieu of cash, such action could
negatively affect our business and financial condition as well as the market price of our common stock. No assurance can be given that
we will pay any dividends on shares of our common stock in the future.
Your percentage ownership in us may be diluted in the future.
Your percentage ownership in us may be diluted in the future because of equity awards that we expect will be granted to our
directors, officers and employees, as well as other equity instruments such as debt and equity financing. Our board of directors has
adopted the CareTrust REIT, Inc. and CTR Partnership, L.P. Incentive Award Plan (the “Incentive Award Plan”), which provides for
the grant of stock-based compensation, including stock options, restricted stock, performance awards, restricted stock units and other
incentive awards to our officers, employees and directors in connection with their employment with or services provided to us. Subject
to adjustment in the event of a merger, recapitalization, stock split, reorganization or similar transaction, the maximum aggregate
number of shares available for issuance under the Incentive Award Plan is 5,000,000. As of December 31, 2015, an aggregate of
4,585,280 shares of common stock were available for future issuance under the awards granted pursuant to the Incentive Award Plan.
Furthermore, any additional equity offerings by us may dilute our existing stockholders, reduce the value of our common stock, or
both.
We may incur or issue debt or issue equity, which may negatively affect the market price of our common stock.
We may in the future incur or issue debt or issue equity or equity-related securities. Upon our liquidation, lenders and holders of
our debt and holders of our preferred stock (if any) would receive a distribution of our available assets before common stockholders.
Any future incurrence or issuance of debt would increase our interest cost and could adversely affect our results of operations and cash
flows. We are not required to offer any additional equity securities to existing common stockholders on a preemptive basis. Therefore,
additional issuances of common stock, directly or through convertible or exchangeable securities (including limited partnership
interests in our operating partnership), warrants or options, will dilute the holdings of our existing common stockholders and such
issuances, or the perception of such issuances, may reduce the market price of our common stock. Any preferred stock issued by us
would likely have a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit
our ability to make distributions to common stockholders. Because our decision to incur or issue debt or issue equity or equity-related
securities in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the
amount, timing, nature or success of our future capital raising efforts. Thus, common stockholders bear the risk that our future
incurrence or issuance of debt or issuance of equity or equity-related securities will adversely affect the market price of our common
stock.
We may issue preferred stock with terms that could dilute the voting power or reduce the value of our common stock.
While we have no specific plan to issue preferred stock, our charter authorizes us to issue, without the approval of our
stockholders, one or more classes or series of preferred stock having such designations, powers, privileges, preferences, including
preferences over our common stock respecting dividends and distributions, terms of redemption and relative participation, optional or
other rights, if any, of the shares of each such series of preferred stock and any qualifications, limitations or restrictions thereof, as our
board of directors may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or
reduce the value of our common stock. For example, the repurchase or redemption rights or liquidation preferences we could assign to
holders of preferred stock could affect the residual value of the common stock.
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ERISA may restrict investments by plans in our common stock.
A plan fiduciary considering an investment in our common stock should consider, among other things, whether such an
investment is consistent with the fiduciary obligations under the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), including whether such investment might constitute or give rise to a prohibited transaction under ERISA, the Code or any
substantially similar federal, state or local law and, if so, whether an exemption from such prohibited transaction rules is available.
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USE OF PROCEEDS
We estimate that the net proceeds to us from this offering, after deducting the underwriting discount and estimated offering
expenses payable by us, will be approximately $91.9 million (or $105.7 million if the underwriters exercise their option to purchase
additional shares of common stock in full). We intend to contribute the net proceeds from this offering to the Operating Partnership,
which will in turn apply the net proceeds to fund the Pipeline Acquisitions. See “Prospectus Supplement Summary—Recent
Developments.”
Pending the use described above, we may apply the net proceeds to repay borrowings outstanding on our New Credit Facility,
and then borrow under the New Credit Facility to fund the Pipeline Acquisitions. We had $45.0 million of borrowings outstanding
under our New Credit Facility as of December 31, 2015. Subsequent to December 31, 2015, we borrowed an additional $52.0 million
under the New Credit Facility to fund a portion of the Recent Acquisitions, resulting in pro forma as adjusted borrowings of
$97.0 million as described further under “Capitalization.” The interest rates applicable to borrowings outstanding under our New
Credit Facility are, at our option, equal to either a base rate plus a margin ranging from 0.75% to 1.40% per annum or applicable
LIBOR plus a margin ranging from 1.75% to 2.40% per annum based on the debt to asset value ratio of us and our subsidiaries
(subject to decrease at our election if we obtain certain specified investment grade ratings on our senior long term unsecured debt).
The New Credit Facility has a maturity date of August 5, 2019, and includes two, six-month extension options.
Affiliates of certain of the underwriters are lenders under our New Credit Facility and, in such capacity, may receive a portion of
the net proceeds from this offering. See “Underwriting (Conflicts of Interest).”
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CAPITALIZATION
The table below sets forth our capitalization as of December 31, 2015:
•
on an actual basis;
•
on a pro forma basis to give effect to the Recent Acquisitions and the Refinancing, including our entry into the First
Amendment and the use of proceeds from the Term Loan to pay off and terminate the GECC Loan; and
•
on a pro forma as adjusted basis to give effect to the issuance and sale of our common stock in this offering and the use
of the net proceeds from such sale, after deducting the underwriting discounts and commissions and our estimated
offering expenses. See “Use of Proceeds.”
You should read this table together with “Use of Proceeds,” and “Prospectus Supplement Summary—Summary Historical
Financial Data” included in this prospectus supplement, as well as our consolidated and combined financial statements and
accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our
Annual Report on Form 10-K for the year ended December 31, 2015, as amended, which are incorporated by reference into this
prospectus supplement.
As of December 31, 2015
Actual
Cash and cash equivalents
$
Long-term debt outstanding, including amounts due within one year:
New Credit Facility
Term Loan
Senior unsecured notes payable
Mortgage notes payable
Total debt
Stockholders’ equity:
Preferred stock, $0.01 par value; 100,000,000 shares authorized, no
shares issued and outstanding on an actual, pro forma and pro forma
as adjusted basis
Common stock, $0.01 par value; 500,000,000 shares authorized,
47,664,742 shares issued and outstanding on an actual and pro
forma basis and 56,164,742 shares issued and outstanding on a pro
forma as adjusted basis
$
Total equity
$
3,857
$
97,000
100,000
260,000
—
5,125
100,000
260,000
—
400,022
457,000
365,125
—
—
477
410,217
(148,406)
477
410,217
(148,406)
562
502,007
(148,406)
262,288
262,288
354,163
662,310
$
719,288
$
(1) Pro forma as adjusted amount does not give effect to a quarterly cash dividend of $0.17 per share of common stock
declared by our Board of Directors on March 16, 2016. The dividend will be paid on April 15, 2016 to common
stockholders of record as of the close of business on March 31, 2016.
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3,857
45,000
—
260,000
95,022
—
Additional paid-in capital
Cumulative distributions in excess of earnings(1)
Total capitalization
11,467
Pro Forma
As Adjusted
Pro Forma
(in thousands)
719,288
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Our common stock is listed on the NASDAQ under the symbol “CTRE.” The table below sets forth, for the fiscal quarters
indicated, high and low reported sale prices per share of our common stock on the NASDAQ and the dividends per share paid for the
periods in which they were paid. The last sale price of our common stock on the NASDAQ on March 21, 2016 was $11.79 per share.
Stock Price
2014
Second Quarter
Third Quarter
Fourth Quarter
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter (through March 21, 2016)
Dividends Paid(2)
High
Low
$ 22.34
20.20
18.49
$ 16.32
14.00
11.32
14.93
14.35
13.93
11.98
11.12
11.87
10.40
10.21
0.125
0.16
0.16
0.16
12.22
11.76
0.16
$
—
—
5.88(1)
(1) In connection with our qualification as a REIT for the taxable year ended December 31, 2014, on October 17, 2014, our board of
directors declared a special dividend to stockholders of $132.0 million, or approximately $5.88 per common share (the “Special
Dividend”), which represents the amount of accumulated earnings and profits allocated to CareTrust as a result of the Spin-Off.
The Special Dividend was paid on December 10, 2014, to stockholders of record as of October 31, 2014, in a combination of
both cash and stock. The cash portion totaled $33.0 million and the stock portion totaled $99.0 million, based on the closing
price of our common stock on the NASDAQ as of the record date. We issued 8,974,249 shares of common stock in connection
with the stock portion of the Special Dividend.
(2) On March 16, 2016, our Board of Directors declared a quarterly cash dividend of $0.17 per share of common stock. The
dividend will be paid on April 15, 2016 to common stockholders of record as of the close of business on March 31, 2016.
As of March 4, 2016, there were approximately 175 common stockholders of record.
It has been our policy to declare dividends to the holders of shares of our common stock so as to comply with applicable
provisions of the Code governing REITs. Cash dividends are typically paid one quarter in arrears, such that the dividend paid in a
quarter is calculated and paid based upon and for the immediately preceding quarter.
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UNDERWRITING (CONFLICTS OF INTEREST)
Subject to the terms and conditions set forth in an underwriting agreement by and among KeyBanc Capital Markets Inc., Wells
Fargo Securities, LLC and BMO Capital Markets Corp., as representatives for the underwriters named in the agreement, and us, we
have agreed to sell to each underwriter, and each underwriter has severally agreed to purchase from us, the number of shares of
common stock set forth opposite its name in the table below:
Underwriter
Number of Shares
KeyBanc Capital Markets Inc.
Wells Fargo Securities, LLC
BMO Capital Markets Corp.
Raymond James & Associates, Inc.
Barclays Capital Inc.
RBC Capital Markets, LLC
Canaccord Genuity Inc.
Capital One Securities, Inc.
Fifth Third Securities, Inc.
2,040,000
1,870,000
1,615,000
1,275,000
935,000
425,000
170,000
85,000
85,000
Total
8,500,000
Under the terms of the underwriting agreement, the underwriters are committed to purchase all of these shares if any shares are
purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting
underwriters may be increased or the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to
contribute to payments the underwriters may be required to make because of any of those liabilities.
The underwriting agreement provides that the underwriters’ obligation to purchase the common stock depends on the
satisfaction of the conditions contained in the underwriting agreement. The conditions contained in the underwriting agreement
include the requirement that the representations and warranties made by us to the underwriters are true, that there is no material
change in the financial markets and that we deliver to the underwriters customary closing documents.
The underwriters propose to offer the shares of common stock directly to the public at the public offering price set forth on the
cover of this prospectus supplement and to certain dealers at such price less a concession not in excess of $0.29 per share. If all of the
shares are not sold at the public offering price, the representatives of the underwriters may change the public offering price and the
other selling terms.
We have granted the underwriters an option to purchase up to an additional 1,275,000 shares of common stock from us at the
public offering price less the underwriting discount. The underwriters may exercise the option for 30 days from the date of this
prospectus supplement. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the
underwriting agreement, to purchase a number of additional shares of common stock proportionate to that underwriter’s initial amount
reflected in the above table.
The following table shows the per share and total underwriting discount that we will pay to the underwriters. These amounts are
shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.
Total Without
Option
Exercised
Per Share
Public Offering Price
Underwriting discount
Proceeds (before expenses) to us
$
$
$
11.3500
0.4823
10.8677
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$
$
$
96,475,000
4,099,550
92,375,450
Total With
Option
Exercised
$
$
$
110,946,250
4,714,483
106,231,767
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We estimate that the total expenses related to this offering payable by us, excluding the underwriting discount, will be
approximately $0.5 million.
We, our executive officers and our directors have agreed with the underwriters, for a period of 45 days after the date of this
prospectus supplement, subject to certain exceptions, not to offer, sell, hedge or otherwise dispose of any shares of our common stock
or any securities convertible into or exchangeable for shares of our common stock, without the prior written consent of KeyBanc
Capital Markets Inc., Wells Fargo Securities, LLC and BMO Capital Markets Corp. However, KeyBanc Capital Markets Inc., Wells
Fargo Securities, LLC and BMO Capital Markets Corp. may, in their sole discretion and at any time without notice, release all or any
portion of the securities subject to these lock-up agreements. When determining whether to release securities from the lock-up
agreements, KeyBanc Capital Markets Inc., Wells Fargo Securities, LLC and BMO Capital Markets Corp. may consider, among other
factors, market conditions at the time, the number of securities for which the release is requested and the stockholder’s reasons for
requesting the release.
The underwriters and/or their respective affiliates are full service financial institutions engaged in various activities, which may
include securities trading, commercial and investment banking, financial advisory, investment management, investment research,
principal investment, hedging, financing and brokerage activities. The underwriters and/or their respective affiliates have from time to
time provided, and expect to provide in the future, investment banking, commercial banking and other financial services to us and our
affiliates, for which they have received and may continue to receive customary fees and commissions. In the ordinary course of their
various business activities, the underwriters and/or their respective affiliates may make or hold a broad array of investments and
actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own
account and for the accounts of their customers, and such investment and securities activities may involve securities and/or
instruments of ours. The underwriters and/or their respective affiliates may also make investment recommendations and/or publish or
express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that
they acquire, long and/or short positions in such securities and instruments.
Affiliates of certain of the underwriters are lenders under our New Credit Facility. KeyBank National Association, an affiliate of
KeyBanc Capital Markets Inc., is the administrative agent, issuing bank, swingline lender and a lender under the New Credit Facility.
Wells Fargo Bank, N.A., an affiliate of Wells Fargo Securities, LLC, BMO Harris Bank, N.A., an affiliate of BMO Capital Markets
Corp., Raymond James Bank, N.A., an affiliate of Raymond James & Associates, Inc., Barclays Bank PLC, an affiliate of Barclays
Capital Inc., Fifth Third Bank, an affiliate of Fifth Third Securities, Inc., and Royal Bank of Canada, an affiliate of RBC Capital
Markets, LLC, are lenders under the New Credit Facility. We intend to contribute the net proceeds from this offering to the Operating
Partnership, which will in turn apply the net proceeds to fund the Pipeline Acquisitions and may, in the interim, use such proceeds to
repay borrowings outstanding on our New Credit Facility. As such, affiliates of certain of the underwriters may receive a portion of
the net proceeds from this offering. Such repayment to affiliates of certain of the underwriters may constitute more than 5% of the net
proceeds of this offering. Consequently, this offering will be made in compliance with the applicable provisions of Rule 5121 of
FINRA. The appointment of a “qualified independent underwriter” is not required in connection with this offering, because a “bona
fide public market,” as defined in Rule 5121, exists for our common stock. The underwriters subject to the rule will not confirm sales
of our common stock to any account over which they exercise discretionary authority without the prior written approval of the
customer.
Until the distribution of the shares of our common stock is completed, SEC rules may limit the underwriters from bidding for
and purchasing our common stock. However, the underwriters may engage in transactions that stabilize the price of our common
stock, such as bids or purchases of shares in the open market while this offering is in progress to peg, fix or maintain that price. These
transactions also may include short sales and purchases to cover positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of shares than they are required to purchase in this offering. “Covered” short sales are made in an
amount not greater than the underwriters’ option to purchase additional shares from us. The underwriters may reduce that
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short position by purchasing shares in the open market or by exercising all or part of the option to purchase additional shares described
above. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares
pursuant to the option granted to them. “Naked” short sales are any sales in excess of such option. The underwriters must close out
any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing
that could adversely affect investors who purchase in this offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion
of the underwriting discount received by it because the representatives have repurchased shares of our common stock sold by or for
the account of such underwriter in stabilizing or short covering transactions.
Neither we nor the underwriters make any representation or prediction as to the effect of the transactions described above may
have on the price of our common stock. Any of these activities may have the effect of preventing or retarding a decline in the market
price of our common stock. They may also cause the price of our common stock to be higher than the price that would otherwise exist
on the open market in the absence of these transactions. The underwriters may conduct these transactions on the NASDAQ or in the
over-the-counter market, or otherwise. If the underwriters commence any of these transactions, they may discontinue them without
notice at any time.
In connection with this offering, the underwriters may also engage in passive market making transactions in our common stock
on NASDAQ in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of
offers or sales of common stock and extending through the completion of distribution. A passive market maker must display its bid at
a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive
market maker’s bid that bid must then be lowered when specified purchase limits are exceeded.
In connection with the offering, certain of the underwriters of securities dealers may distribute prospectuses by electronic means,
such as e-mail.
Notice to Prospective Investors in Canada
The shares may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited
investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and
are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant
Obligations. Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the
prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or
damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission
or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or
territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory
for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to
comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
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Notice to Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a relevant
member state), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member
state (the relevant implementation date), an offer of securities described in this prospectus supplement may not be made to the public
in that relevant member state other than:
•
to any legal entity which is a qualified investor as defined in the Prospectus Directive;
•
to fewer than 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as
permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant dealer or dealers
nominated by the issuer for any such offer; or
•
in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of shares of securities shall require us or any sales agent to publish a prospectus pursuant to Article 3 of
the Prospectus Directive.
For purposes of this provision, the expression an “offer of securities to the public” in any relevant member state means the
communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as
to enable an investor to decide to purchase or subscribe for the securities, as the expression may be varied in that member state by any
measure implementing the Prospectus Directive in that member state, and the expression “Prospectus Directive” means Directive
2003/71/EC as amended, including Directive 2010/73/EU and includes any relevant implementing measures in the Relevant Member
State.
We have not authorized and do not authorize the making of any offer of securities through any financial intermediary on their
behalf, other than offers made by the sales agents with a view to the final placement of the securities as contemplated in this
prospectus supplement. Accordingly, no purchaser of the securities, other than the sales agents, is authorized to make any further offer
of the securities on behalf of the sellers or the sales agents.
Notice to Prospective Investors in the United Kingdom
We may constitute a “collective investment scheme” as defined by section 235 of the Financial Services and Markets Act 2000
(“FSMA”) that is not a “recognized collective investment scheme” for the purposes of FSMA (“CIS”) and that has not been authorized
or otherwise approved. As an unregulated scheme, it cannot be marketed in the United Kingdom to the general public, except in
accordance with FSMA. This prospectus supplement is only being distributed in the United Kingdom to, and is only directed at:
(1) if we are a CIS and are marketed by a person who is an authorized person under FSMA, (a) investment professionals falling
within Article 14(5) of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) Order
2001, as amended (the “CIS Promotion Order”) or (b) high net worth companies and other persons falling within Article
22(2)(a) to (d) of the CIS Promotion Order; or
(2) otherwise, if marketed by a person who is not an authorized person under FSMA, (a) persons who fall within Article 19(5)
of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Financial Promotion
Order”) or (b) Article 49(2)(a) to (d) of the Financial Promotion Order; and
(3) in both cases (i) and (ii) to any other person to whom it may otherwise lawfully be made (all such persons together being
referred to as “relevant persons”).
Our common stock is only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such
common stock will be engaged in only with, relevant persons. Any person who is not a
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relevant person should not act or rely on this prospectus supplement or any of its contents. An invitation or inducement to engage in
investment activity (within the meaning of Section 21 of FSMA) in connection with the issue or sale of common stock which is the
subject of the offering contemplated by this prospectus supplement will only be communicated or caused to be communicated in
circumstances in which Section 21(1) of FSMA does not apply to us and each underwriter has complied and will comply with all
applicable provisions of FSMA with respect to anything done by it in relation to any of our common stock in, from or otherwise
involving the United Kingdom.
Notice to Prospective Investors in Switzerland
Each copy of this prospectus supplement is addressed to a specifically named recipient and may not be copied, reproduced,
distributed or passed on to third parties.
The distribution of shares or units in foreign collective investment schemes in or from Switzerland are subject to the Collective
Investment Schemes Act of June 23, 2006, as amended from time to time (the “CISA”). Art. 3 CISA defines the term “distribution” as
any offer of, or advertisement for, collective investment schemes that is not exclusively directed towards supervised financial
intermediaries as per art. 10 para. 3 lit. (a) CISA and supervised insurance companies as per art. 10 para. 3 lit. (b) CISA and qualifies
certain other activities as not being “distribution”. The distribution of shares or units in foreign collective investment schemes in or
from Switzerland to non-qualified investors is subject to authorization by the Swiss Financial Market Supervisory Authority (FINMA)
and certain other requirements. Shares or units in a foreign collective investment scheme may be distributed in Switzerland to
unregulated qualified investors without such authorization by the FINMA, provided that certain other requirements are met, in
particular, that a representative and a paying agent was appointed in Switzerland for the shares or units distributed in Switzerland.
The Company qualifies as a foreign collective investment scheme for the purposes of the CISA. The distribution of our common
stock to non-qualified investors has not been approved by the FINMA, and no representative or payment agent was appointed by the
Company in Switzerland. Any offering of our common stock, and any other form of solicitation of investors in relation to the
Company (including by way of circulation of offering materials or information, including this prospectus supplement) in Switzerland,
shall be made or directed only (i) towards supervised financial intermediaries such as banks, securities dealers, fund management
companies, asset managers of collective investment schemes and central banks as per art. 10 para. 3 lit. (a) CISA, (ii) towards
supervised insurance companies as per art. 10 para. 3 lit. (b) CISA and/or (iii) otherwise in a way not qualifying as “distribution” as
per art. 3 CISA, all pursuant to the prerequisites laid out in the CISA and its implementing ordinances as well as any applicable
FINMA guidelines and practice, including, in particular, FINMA Circular 2013/9 dated August 28, 2013, as amended from time to
time. Failure to comply with the above-mentioned requirements may constitute a breach of the CISA.
Notice to Prospective Investors in the Netherlands
Our common stock may not be offered or sold, directly or indirectly, in the Netherlands, other than to qualified investors
(gekwalificeerde beleggers) within the meaning of Article 1:1 of the Dutch Financial Supervision Act (Wet op het financieel toezicht).
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LEGAL MATTERS
Certain legal matters regarding the validity of the securities offered hereby will be passed upon for us by O’Melveny & Myers
LLP, Newport Beach, California and by DLA Piper LLP (US), Baltimore, Maryland, with respect to matters of Maryland law. In
addition, certain U.S. federal income tax matters will be passed upon for us by Kirkland & Ellis LLP, Los Angeles, California. The
underwriters have been represented by Jones Day.
EXPERTS
The consolidated and combined financial statements of CareTrust REIT, Inc. at December 31, 2015 and 2014, and for the years
ended December 31, 2015 and 2014 appearing in CareTrust REIT, Inc.’s Annual Report on Form 10-K, for the year ended
December 31, 2015 (including the schedule appearing therein) have been audited by Ernst & Young LLP, independent registered
public accounting firm, as set forth in their report thereon, included therein, and incorporated herein by reference. Such consolidated
and combined financial statements and schedule are incorporated herein by reference in reliance upon their report given on their
authority as experts in accounting and auditing.
The financial statements and the related financial statement schedule of Ensign Properties incorporated in this prospectus
supplement by reference from CareTrust REIT, Inc.’s Annual Report on Form 10-K, as amended, have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their report, which is incorporated herein by reference,
which report expresses an unqualified opinion on the financial statements and financial statement schedule and includes an
explanatory paragraph referring to related party transactions with The Ensign Group, Inc. Such financial statements and financial
statement schedule have been so incorporated in reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Pristine Senior Living, LLC and subsidiary appearing in CareTrust REIT, Inc.’s
Amendment No. 1 to its Annual Report on Form 10-K/A for the year ended December 31, 2015 filed with the SEC on March 16, 2016
have been audited by Bradley & Associates, Inc., public accounting firm, as set forth in their report therein, and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by reference in reliance on the report of such firm given
upon its authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 under the Securities Act to register with the SEC the securities
being offered in this prospectus supplement. This prospectus supplement, which constitutes a part of the registration statement, does
not contain all of the information set forth in the registration statement or the exhibits and schedules filed with it. For further
information about us, and the securities being offered, reference is made to the registration statement and the exhibits and schedules
filed with it. Statements contained or incorporated by reference in this prospectus supplement regarding the contents of any contract or
any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is
qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement.
We file annual, quarterly and current reports, proxy and registration statements and other information with the SEC. We make these
reports and other information available, free of charge, on the Investor Relations section of our website at www.caretrustreit.com .
The information contained on or that can be accessed through our website is not incorporated by reference into, and is not part of, this
prospectus supplement, other than documents that we file with the SEC that are incorporated by reference into this prospectus
supplement. You may also read and copy any reports, statements, or other information that we file, including the registration
statement, of which this prospectus supplement forms a part, and the exhibits and schedules filed with it, without charge at the public
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reference room maintained by the SEC, located at 100 F Street, NE, Room 1024, Washington, D.C. 20549, and copies of all or any
part of the registration statement may be obtained from the SEC on the payment of the fees prescribed by the SEC. Please call the SEC
at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains an Internet website that contains
reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The
address of the site is www.sec.gov .
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PROSPECTUS
$750,000,000
CareTrust REIT, Inc.
Common Stock
Preferred Stock
Warrants
CareTrust REIT, Inc., from time to time, may offer to sell shares of common stock, shares of preferred stock and warrants in one
or more primary offerings of up to $750,000,000 in aggregate principal amount. The preferred stock and warrants may be convertible
into, or exercisable or exchangeable for, our common stock, our preferred stock, our debt securities, our other securities or the debt or
equity securities of one or more other entities.
We may offer and sell these securities to or through one or more underwriters, dealers and agents, or directly to purchasers, on a
continuous or delayed basis. This prospectus describes some of the general terms that may apply to these securities. The specific terms
of any securities to be offered, including the specific plan of distribution for any such securities, will be described in a supplement to
this prospectus. Prospectus supplements may also add, update or change information contained in this prospectus. You should read
this prospectus and any applicable prospectus supplement carefully before you invest.
Our shares of common stock are listed on the NASDAQ Global Select Market under the symbol “CTRE.” On January 7, 2016,
the last reported sales price for our common stock on the NASDAQ Global Select Market was $10.79 per share. As of the date of this
prospectus, other than our common stock, none of the securities that we may offer by this prospectus is listed on any national
securities exchange or automated quotation system.
Investing in our securities involves risks. You should read carefully the section entitled “Risk Factors on
page 3 herein and the “Risk Factors” section contained in the applicable prospectus supplement and in
the documents incorporated by reference in this prospectus.
This prospectus may not be used to offer to sell any securities unless accompanied by a prospectus supplement.
We are an “emerging growth company” under applicable Securities and Exchange Commission rules and will be eligible
for reduced public company reporting requirements.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of
these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is January 25, 2016.
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TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
WHERE YOU CAN FIND MORE INFORMATION
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
CARETRUST REIT, INC.
RISK FACTORS
USE OF PROCEEDS
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF WARRANTS
CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
U.S. FEDERAL INCOME TAX CONSIDERATIONS
PLAN OF DISTRIBUTION
LEGAL MATTERS
EXPERTS
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3
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-3 that we filed with the Securities and Exchange Commission (the
“SEC”) using a “shelf” registration process. Under this shelf process, we may from time to time sell any combination of the securities
described in this prospectus in one or more offerings.
This prospectus provides you with a general description of the securities that we may offer. Each time we sell securities, we will
provide a prospectus supplement that contains specific information about the terms of that offering. This prospectus may not be used
to consummate sales of securities unless it is accompanied by a prospectus supplement. The prospectus supplement may add
information to this prospectus or update or change information in this prospectus. If there is any inconsistency between the
information in this prospectus and any prospectus supplement, you should rely on the information in the prospectus supplement. You
should carefully read this prospectus and any prospectus supplement together with the additional information described under the
headings “Where You Can Find More Information” and “Incorporation of Certain Information by Reference.”
You should rely only on the information contained in, or incorporated by reference into, this prospectus, in any accompanying
prospectus supplement or in any free writing prospectus filed by us with the SEC. We have not authorized anyone to provide you with
different or additional information. We are not offering to sell or soliciting any offer to buy any securities in any jurisdiction where the
offer or sale is not permitted.
You should assume that the information in this prospectus, any prospectus supplement or any free writing prospectus is accurate
only as of the date on its respective cover, and that any information incorporated by reference is accurate only as of the date of the
document incorporated by reference, unless we indicate otherwise. Our business, financial condition, results of operations and
prospects may have changed since those dates.
Unless the context otherwise indicates, the terms “CareTrust,” the “Company,” “we,” “us” and “our” as used in this prospectus
refer to CareTrust REIT, Inc. and its consolidated subsidiaries. The phrase “this prospectus” refers to this prospectus and any
applicable prospectus supplement, unless the context otherwise requires.
WHERE YOU CAN FIND MORE INFORMATION
CareTrust REIT, Inc. files annual, quarterly and current reports, proxy statements and other information with the SEC. The
public may read and copy the information we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at
1–800–SEC–0330. The SEC also maintains an Internet site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.
Our website address is located at http://www.caretrustreit.com. Through links on the “Investors” portion of our website, we
make available free of charge our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, any
amendments to those reports and other information filed with, or furnished to, the SEC pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such material is made available through our website as soon as
reasonably practicable after we electronically file the information with, or furnish it to, the SEC. The information contained on or that
can be accessed through our website does not constitute part of this prospectus.
We have filed with the SEC a registration statement on Form S-3 relating to the securities covered by this prospectus. This
prospectus does not contain all the information set forth in the registration statement, parts of which are omitted in accordance with the
rules and regulations of the SEC. You will find additional information about us in the registration statement. Any statement made in
this prospectus concerning a contract or other document of ours is not necessarily complete and you should read the documents that
are filed as exhibits to the
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registration statement or otherwise filed with the SEC for a more complete understanding of the document or matter. Each such
statement is qualified in all respects by reference to the document to which it refers. The full registration statement, including exhibits
thereto, may be obtained from the SEC or us as indicated above.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate by reference” information into this prospectus, which means that we can disclose important
information about us by referring you to another document filed separately with the SEC. The information incorporated by reference is
considered to be a part of this prospectus. This prospectus incorporates by reference the documents and reports listed below (other
than the portions that are deemed to have been furnished and not filed in accordance with SEC rules):
•
our Annual Report on Form 10-K for the year ended December 31, 2014 (filed with the SEC on February 11, 2015);
•
our Quarterly Reports on Form 10-Q for the period ended March 31, 2015 (filed with the SEC on May 12, 2015), the
period ended June 30, 2015 (filed with the SEC on August 10, 2015) and the period ended September 30, 2015 (filed
with the SEC on November 5, 2015);
•
the portions of our Definitive Proxy Statement on Schedule 14A filed with the SEC on April 28, 2015, that are
incorporated by reference into Part III of our Annual Report on Form 10-K for the year ended December 31, 2014;
•
our Current Reports on Form 8-K filed with the SEC on April 20, 2015, June 1, 2015, June 9, 2015, August 6,
2015, August 10, 2015, August 18, 2015 and October 27, 2015, and our Current Report on Form 8-K/A filed with the
SEC on December 17, 2015; and
•
the description of our common stock, par value $0.01 per share, contained in our Registration Statement on Form 10
initially filed with the SEC on November 7, 2013 (File No. 001-36181), including any amendments or reports filed for
the purpose of updating such description.
We also incorporate by reference the information contained in all other documents we file with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act (other than the portions that are deemed to have been furnished and not filed in
accordance with SEC rules, unless otherwise indicated therein) after the date of the initial registration statement of which this
prospectus forms a part and prior to the effectiveness of such registration statement, and on or after the date of this prospectus but
prior to the completion of the offerings of all securities under this prospectus and any prospectus supplement. The information
contained in any such document will be considered part of this prospectus from the date the document is filed with the SEC. Any
statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this prospectus and any accompanying prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a
part of this prospectus or any accompanying prospectus supplement.
We will provide to each person, including any beneficial owner, to whom a prospectus (or a notice of registration in lieu thereof)
is delivered a copy of any or all of the documents incorporated by reference into this prospectus (including any exhibits that are
specifically incorporated by reference in those documents) at no cost. Any such request can be made by writing or telephoning us at
the following address and telephone number:
CareTrust REIT, Inc.
905 Calle Amanecer, Suite 300
San Clemente, California 92673
(949) 542-3130
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus, any prospectus supplement and the documents incorporated herein and therein by
reference may constitute forward-looking statements. Those forward-looking statements include all statements that are not historical
statements of fact and those regarding our intent, belief or expectations, including, but not limited to, statements regarding: future
financing plans, business strategies, growth prospects and operating and financial performance; expectations regarding the making of
distributions and the payment of dividends; and compliance with and changes in governmental regulations.
Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “may,” “will,” “would,” “could,” “should,”
“seek(s)” and similar expressions, or the negative of these terms, are intended to identify such forward-looking statements. These
statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties that
could lead to actual results differing materially from those projected, forecasted or expected. Although we believe that the assumptions
underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors
which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ
materially from our expectations include, but are not limited to:
•
the ability to achieve some or all of the benefits that we expect to achieve from the completed Spin-Off (as defined
below) and our ability to successfully conduct our business following the Spin-Off;
•
the ability and willingness of The Ensign Group, Inc. (“Ensign”) to meet and/or perform its obligations under the
contractual arrangements that it entered into with us in connection with the Spin-Off, including the Ensign Master
Leases (as defined below), and any of its obligations to indemnify, defend and hold us harmless from and against
various claims, litigation and liabilities;
•
the ability of our tenants to comply with laws, rules and regulations in the operation of the properties we lease to
them;
•
the ability and willingness of our tenants, including Ensign, to renew their leases with us upon their expiration, and
the ability to reposition our properties on the same or better terms in the event of nonrenewal or in the event we
replace an existing tenant, and obligations, including indemnification obligations, we may incur in connection with
the replacement of an existing tenant;
•
the availability of and the ability to identify suitable acquisition opportunities and the ability to acquire and lease the
respective properties on favorable terms;
•
the ability to generate sufficient cash flows to service our outstanding indebtedness;
•
access to debt and equity capital markets;
•
fluctuating interest rates;
•
the ability to retain our key management personnel;
•
the ability to qualify or maintain our status as a real estate investment trust (“REIT”);
•
changes in the U.S. tax law and other state, federal or local laws, whether or not specific to REITs; and
•
other risks inherent in the real estate business, including potential liability relating to environmental matters and
illiquidity of real estate investments.
We urge you to carefully consider these risks and review the additional disclosures we make concerning risks and other factors
that may materially affect the outcome of our forward-looking statements and our future business and operating results, including
those made in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2014, as such risk
factors may be amended, supplemented or superseded from time to time by other reports we file with the SEC in the future, including
subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, and in any prospectus supplement. We caution you
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that any forward-looking statements made in this prospectus, any prospectus supplement and the documents incorporated herein and
therein by reference are not guarantees of future performance, events or results, and you should not place undue reliance on these
forward-looking statements, which speak only as of their respective dates. Except as required by law, we expressly disclaim any
obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or
any change in events, conditions or circumstances on which any statement is based.
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CARETRUST REIT, INC.
CareTrust is a separate and independent publicly traded, self-administered, self-managed company primarily engaged in the
ownership, acquisition and leasing of healthcare-related properties. We were formed as a Maryland corporation and a wholly owned
subsidiary of Ensign on October 29, 2013. On June 1, 2014, Ensign completed the separation of its healthcare business and its real
estate business into two separate and independent publicly traded companies through the distribution of all of the outstanding shares of
common stock of CareTrust to Ensign stockholders on a pro rata basis (the “Spin-Off”). We hold substantially all of the real property
that was previously owned by Ensign. As of September 30, 2015, we owned and leased to independent operators, including to Ensign,
on a triple-net basis under multiple long-term leases, 105 skilled nursing, assisted living and independent living facilities (“ILFs”),
which had a total of 10,886 operational beds and units located in Arizona, California, Colorado, Florida, Georgia, Idaho, Iowa,
Minnesota, Nebraska, Nevada, Texas, Utah, Virginia and Washington. As of September 30, 2015, we also owned and operated three
ILFs, which had a total of 264 units located in Texas and Utah. As of September 30, 2015, we also had one other real estate
investment, consisting of an $8.2 million preferred equity investment.
We have leased 94 of our properties to subsidiaries of Ensign pursuant to master leases (each, an “Ensign Master Lease” and,
collectively, the “Ensign Master Leases”), which consist of eight triple-net leases, each with its own pool of properties, that have
varying maturities and diversity in property geography. The Ensign Master Leases, which commenced on June 1, 2014, provide for
initial terms of 12 to 19 years with staggered expiration dates and no purchase options. At the option of Ensign, each Ensign Master
Lease may be extended for up to either two or three five-year renewal terms beyond the initial term and, if elected, the renewal will be
effective for all of the leased property then subject to that Ensign Master Lease. The rent is a fixed component that was initially set
near the time of the Spin-Off. The annual revenues from the Ensign Master Leases are $56.0 million during each of the first two years
of the Ensign Master Leases. Commencing on June 1, 2016, the annual revenues from the Ensign Master Leases will be escalated
annually by an amount equal to the product of (1) the lesser of (a) the percentage change in the Consumer Price Index over the prior
year (but not less than zero) or (b) 2.5%, and (2) the prior year’s rent. The obligations under the Ensign Master Leases are guaranteed
by Ensign. Ensign is subject to the reporting requirements of the SEC and is required to file with the SEC annual reports containing
audited financial information and quarterly reports containing unaudited financial information. Ensign’s filings with the SEC can be
found at www.sec.gov.
On October 1, 2015, we completed the acquisition, from affiliates of Liberty Nursing Center, of a 14 facility skilled nursing and
assisted living portfolio, for approximately $173 million, exclusive of estimated transaction costs of approximately $3.5 million (the
“Liberty Acquisition”). The facilities acquired in the Liberty Acquisition are located throughout Ohio and collectively include 1,102
skilled nursing facility beds, 100 assisted living facility units and 56 ILF units available for occupancy. The properties acquired in the
Liberty Acquisition are operated under a long-term, triple-net lease (the “Pristine Master Lease”) with affiliates of Pristine Senior
Living, LLC (“Pristine”). The tenants’ obligations under the Pristine Master Lease are guaranteed by Pristine and two of its principals.
We generate revenues primarily by leasing healthcare-related properties to healthcare operators in triple-net lease arrangements,
under which the tenant is solely responsible for the costs related to the property (including property taxes, insurance, and maintenance
and repair costs). We conduct and manage our business as one operating segment for internal reporting and internal decision making
purposes. We expect to grow our portfolio by pursuing opportunities to acquire additional properties that will be leased to a diverse
group of local, regional and national healthcare providers, which may include Ensign, as well as senior housing operators and related
businesses. We also anticipate diversifying our portfolio over time, including by acquiring properties in different geographic markets,
and in different asset classes.
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We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended
December 31, 2014. We believe that we have been organized and have operated, and we intend to continue to operate, in a manner to
qualify for taxation as a REIT. We operate through an umbrella partnership, commonly referred to as an UPREIT structure, in which
substantially all of our properties and assets are held the Operating Partnership. The Operating Partnership is managed by CareTrust’s
wholly owned subsidiary, CareTrust GP, LLC, which is the sole general partner of the Operating Partnership. To maintain REIT
status, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute to
our stockholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding
any net capital gains.
Our principal executive offices are located at 905 Calle Amanecer, Suite 300, San Clemente, California 92673 and our telephone
number is (949) 542-3130.
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RISK FACTORS
Investing in our securities involves significant risks. You should consider the specific risks described in our Annual Report on
Form 10-K for the year ended December 31, 2014, filed with the SEC on February 11, 2015, the risk factors described under the
caption “Risk Factors” in any applicable prospectus supplement and any risk factors set forth in our other filings with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, before making an investment decision. Each of the risks described
in these documents could materially and adversely affect our business, financial condition, results of operations and prospects, and
could result in a partial or complete loss of your investment. See “Where You Can Find More Information” and “Incorporation of
Certain Information by Reference”.
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USE OF PROCEEDS
We intend to use the net proceeds from the sale of any securities offered by us under this prospectus as set forth in the applicable
prospectus supplement.
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RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed charges and preferred stock dividends for CareTrust for
each of the periods indicated. You should read this table in conjunction with the consolidated financial statements and notes
incorporated by reference in this prospectus.
Nine Months
Ended
September,
2015
Year Ended December 31,
2011(1)
2012(1)
2013(1)
2014(1)(2)
Ratio of earnings to combined fixed
charges and preferred stock dividends
(3)
(1)
(2)
(3)
—
1.02x
—
—
1.28x
The ratios for the years ended December 31, 2011, 2012 and 2013 are based on the historical financial information of Ensign
Properties, the predecessor of CareTrust. The ratio for the year ended December 31, 2014 is based, in part, on the historical
financial information of Ensign Properties prior to June 1, 2014, the effective date of the Spin-Off.
$260.0 million aggregate principal amount of 5.875% Senior Notes due 2021 were issued on May 30, 2014 by our subsidiaries,
the Operating Partnership and CareTrust Capital Corp. Interest on such notes accrues from May 30, 2014.
For the purpose of computing our ratio of earnings to combined fixed charges and preferred stock dividends, “earnings” is the
amount resulting from adding: (a) pre-tax income from continuing operations; and (b) fixed charges. “Fixed charges” is the
amount equal to the sum of: (i) interest expensed and capitalized; (ii) amortization of premiums, discounts and capitalized
expenses related to indebtedness; and (iii) an estimate of the interest within rental expense. There were no preferred stock
dividends in the years ended December 31, 2011 through December 31, 2014 and the nine months ended September 30, 2015.
Earnings were insufficient to cover fixed charges by $6,514,000, $272,000 and $8,143,000 for the years ended December 31,
2011, 2013 and 2014, respectively.
Dividends paid on preferred securities issued would be included as fixed charges and therefore impact the ratio of earnings to
combined fixed charges and preferred stock dividends. As of the date of this prospectus, we have not issued any shares of our
preferred stock.
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DESCRIPTION OF CAPITAL STOCK
The following description summarizes the material provisions of the common stock and preferred stock we may offer. This
description is not complete and is subject to, and is qualified in its entirety by reference to our charter and our bylaws and applicable
provisions of the Maryland General Corporation Law the (“MGCL”). The specific terms of any series of preferred stock will be
described in the applicable prospectus supplement. Any series of preferred stock we issue will be governed by our charter and by the
articles supplementary related to that series. We will file the articles supplementary with the SEC and incorporate it by reference as an
exhibit to our registration statement at or before the time we issue any preferred stock of that series of authorized preferred stock.
General
Our authorized stock consists of 500,000,000 shares of common stock, par value $0.01 per share, and 100,000,000 shares of
preferred stock, par value $0.01 per share. As of December 31, 2015, 48,148,269 shares of our common stock were issued and
outstanding and no shares of our preferred stock were outstanding. All the outstanding shares of our common stock are fully paid and
nonassessable.
Common Stock
All of the shares of our common stock offered hereby will, upon issuance, be duly authorized, fully paid and nonassessable.
Subject to the preferential rights of any other class or series of our stock and the provisions of our charter that will restrict transfer and
ownership of stock, the holders of shares of our common stock generally are entitled to receive dividends on such stock out of assets
legally available for distribution to the stockholders when, as and if authorized by our board of directors and declared by us. The
holders of shares of our common stock are also entitled to share ratably in our net assets legally available for distribution to
stockholders in the event of our liquidation, dissolution or winding up, after payment of or adequate provision for all known debts and
liabilities.
Subject to the rights of any other class or series of our stock and the provisions of our charter that restrict transfer and ownership
of stock, each outstanding share of our common stock entitles the holder to one vote on all matters submitted to a vote of the
stockholders, including the election of directors. Under our charter there is no cumulative voting in the election of directors. Our
bylaws require that each director be elected by a plurality of votes cast with respect to such director.
Holders of shares of our common stock generally have no preference, conversion, exchange, sinking fund, redemption or
appraisal rights and have no preemptive rights to subscribe for any of our securities. Subject to the provisions of our charter that
restrict transfer and ownership of stock, all shares of our common stock have equal dividend, liquidation and other rights.
Preferred Stock
Under our charter, our board of directors may from time to time establish and cause us to issue one or more classes or series of
preferred stock and set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or
other distributions, qualifications, or terms or conditions of redemption of such classes or series. Accordingly, our board of directors,
without stockholder approval, may issue preferred stock with voting, conversion or other rights that could adversely affect the voting
power and other rights of the holders of common stock. Preferred stock could be issued quickly with terms calculated to delay or
prevent a change of control or make removal of management more difficult. Additionally, the issuance of preferred stock may have
the effect of decreasing the market price of our common stock, may adversely affect the voting and other rights of the holders of our
common stock, and could have the effect of delaying, deferring or preventing a change of control of our company or other corporate
action. Preferred stock, upon issuance against full payment
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of the purchase price therefor, will be fully paid and nonassessable. As of December 31, 2015, no shares of preferred stock were
outstanding.
The prospectus supplement relating to a particular series of preferred stock offered will describe the specific terms thereof,
including, where applicable:
•
the title, designation, number of shares and stated value of the preferred stock;
•
the price at which the preferred stock will be issued;
•
the dividend rates, if any (or method of calculation), whether that rate is fixed or variable or both, and the dates on
which dividends will be payable, whether those dividends will be cumulative or noncumulative and, if cumulative, the
dates from which dividends will begin to cumulate;
•
the dates on which the preferred stock will be subject to redemption and the applicable redemption prices;
•
any redemption or sinking fund provisions;
•
the convertibility or exchangeability of the preferred stock;
•
if other than United States dollars, the currency or currencies (including composite currencies) in which the preferred
stock is denominated and/or in which payments will or may be payable;
•
the method by which amounts in respect of the preferred stock may be calculated and any commodities, currencies or
indices, or the value, rate or price relevant to that calculation;
•
the place where dividends and other payments on the preferred stock are payable and the identity of the transfer agent,
registrar and dividend disbursement agent for the preferred stock;
•
any listing of the preferred stock on any securities exchange; and
•
any additional dividend, liquidation, redemption, preemption, sinking fund, voting and other rights, preferences,
privileges, limitations and restrictions.
The federal income tax consequences and special considerations applicable to any series of preferred stock will be generally
described in the prospectus supplement related thereto.
Rank
Unless otherwise specified in the prospectus supplement relating to a particular series of preferred stock, each series of preferred
stock will rank pari passu as to dividends and liquidation rights in all respects with each other series of preferred stock.
Dividends
Holders of preferred stock of each series will be entitled to receive, when, as and if declared by our board of directors, cash
dividends out of our assets legally available for payment, at those rates and on the dates as will be set forth in the prospectus
supplement relating to that series of preferred stock. Each dividend will be payable to holders of record as they appear on our stock
books on the record dates fixed by our board of directors or a duly authorized committee thereof. Different series of preferred stock
may be entitled to dividends at different rates or based upon different methods of determination. Those rates may be fixed or variable
or both. Dividends on any series of preferred stock may be cumulative or noncumulative as provided in the prospectus supplement
relating thereto. Except as provided in the related prospectus supplement, no series of preferred stock will be entitled to participate in
our earnings or assets.
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Liquidation Rights
Unless otherwise stated in the related prospectus supplement, in the event of our voluntary or involuntary liquidation, dissolution
or winding up, holders of each series of preferred stock will be entitled to receive out of our assets available for distribution to
stockholders, before any distribution of assets is made to holders of common stock or any other class of stock ranking junior to that
series of preferred stock upon liquidation, liquidating distributions in an amount set forth in the prospectus supplement related to that
series of preferred stock, plus an amount equal to all accrued and unpaid dividends up to the date fixed for distribution for the current
dividend period and, if that series of preferred stock is cumulative, for all dividend periods prior thereto, all as set forth in the
prospectus supplement with respect to that series of preferred stock. If, upon our voluntary or involuntary liquidation, dissolution or
winding up, amounts payable with respect to a series of preferred stock and any other shares of our capital stock ranking pari passu as
to any distribution with that series of preferred stock are not paid in full, holders of that series of preferred stock and of such other
shares will share ratably in any distribution of our assets in proportion to the full respective preferential amounts to which they are
entitled. After payment in full of the liquidating distribution to which they are entitled, holders of preferred stock will not be entitled to
any further participation in any distribution of our assets.
Neither the sale, conveyance, exchange or transfer of all or substantially all of our property and assets, our consolidation or
merger with or into any other corporation, nor the merger or consolidation of any other corporation into or with us, will be deemed to
be a liquidation, dissolution or winding up of us.
In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other
acquisition of shares of our stock or otherwise is permitted under the MGCL, no effect shall be given to amounts that would be
needed, if we would be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of shares
of our stock whose preferential rights upon dissolution are superior to those receiving the distribution.
Redemption and Sinking Fund
The terms, if any, on which shares of a series of preferred stock may be subject to optional or mandatory redemption, in whole
or in part, or may have the benefit of a sinking fund, will be set forth in the prospectus supplement relating to that series. Restrictions,
if any, on our repurchase or redemption of shares of a series of preferred stock while there is an arrearage in the payment of dividends
or sinking fund installments will be set forth in the prospectus supplement relating to that series.
Voting Rights
The voting rights attaching to any series of preferred stock will be described in the applicable prospectus supplement.
Conversion and Exchange Rights
The terms, if any, on which shares of any series of preferred stock are convertible or exchangeable will be set forth in the
prospectus supplement relating thereto. The prospectus supplement will describe the securities or rights into which the shares of
preferred stock are convertible or exchangeable (which may include other preferred stock, debt securities, common stock, warrants or
other of our securities or rights (including rights to receive payment in cash or securities based on the value, rate or price of one or
more specified commodities, currencies or indices) or securities of other issuers or a combination of the foregoing), and the terms and
conditions upon which those conversions or exchanges will be effected including the initial conversion or exchange prices or rules, the
conversion or exchange period and any other related provisions. Those terms may include provisions for conversion or exchange, the
exchange or conversion period, provisions as to whether the conversion or exchange is mandatory, at the option of the holder, or at our
option, and may include provisions
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pursuant to which the consideration to be received by holders of that series of preferred stock would be calculated as of a time and in
the manner stated in the prospectus supplement.
Power to Reclassify Our Unissued Shares
Our board of directors has the power, without stockholder approval, to amend our charter to increase or decrease the aggregate
number of authorized shares of stock or the number of authorized shares of stock of any class or series, to authorize us to issue
additional authorized but unissued shares of common stock or preferred stock and to classify and reclassify any unissued shares of our
common stock or preferred stock into other classes or series of stock, including one or more classes or series of common stock or
preferred stock that have priority with respect to voting rights, dividends or upon liquidation over shares of our common stock. Prior
to the issuance of shares of each new class or series, our board of directors is required by the MGCL and our charter to set, subject to
the provisions of our charter regarding restrictions on transfer and ownership of stock, the terms, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption
for each class or series of stock.
Restrictions on Transfer and Ownership of CareTrust Stock
In order for us to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), our stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than our first taxable year as
a REIT) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of our
stock may be owned, beneficially or constructively, by five or fewer individuals (as defined in the Code to include certain entities such
as qualified pension plans) during the last half of a taxable year (other than our first taxable year as a REIT). In addition, rent from
related party tenants (generally, a tenant of a REIT owned, beneficially or constructively, 10% or more by the REIT, or a 10% owner
of the REIT) is not qualifying income for purposes of the gross income tests under the Code. To qualify as a REIT, we must satisfy
other requirements as well. See “U.S. Federal Income Tax Considerations—Taxation of REITs in General.”
Our charter contains restrictions on the transfer and ownership of our stock. The relevant sections of our charter provide that,
subject to the exceptions described below, no person or entity may beneficially own, or be deemed to own by virtue of the applicable
constructive ownership provisions of the Code, more than 9.8% in value or in number of shares, whichever is more restrictive, of the
outstanding shares of our common stock, or more than 9.8% in value of the outstanding shares of all classes or series of our stock.
These limits are collectively referred to herein as the “ownership limits.” The constructive ownership rules under the Code are
complex and may cause stock owned beneficially or constructively by a group of related individuals or entities to be owned
constructively by one individual or entity. As a result, the acquisition of less than 9.8% of our outstanding common stock or less than
9.8% of our outstanding capital stock, or the acquisition of an interest in an entity that beneficially or constructively owns our stock,
could, nevertheless, cause the acquiror, or another individual or entity, to own constructively shares of our outstanding stock in excess
of the ownership limits.
Upon receipt of certain representations and agreements and in its sole and absolute discretion, our board of directors will be able
to, prospectively or retroactively, exempt a person from the ownership limits or establish a different limit on ownership, or an
excepted holder limit, for a particular stockholder if the stockholder’s ownership in excess of the ownership limits would not result in
us being “closely held” under Section 856(h) of the Code or otherwise failing to qualify as a REIT. As a condition of granting a
waiver of the ownership limits or creating an excepted holder limit, our board of directors will be able to, but is not required to,
require an Internal Revenue Service (“IRS”) ruling or opinion of counsel satisfactory to our board of directors (in its sole discretion)
as it may deem necessary or advisable to determine or ensure our status as a REIT.
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Our board of directors will also be able to, from time to time, increase or decrease the ownership limits unless, after giving effect
to the increased or decreased ownership limits, five or fewer persons could beneficially own or constructively own, in the aggregate,
more than 49.9% in value of our outstanding stock or we would otherwise fail to qualify as a REIT. Decreased ownership limits will
not apply to any person or entity whose ownership of our stock is in excess of the decreased ownership limits until the person or
entity’s ownership of our stock equals or falls below the decreased ownership limits, but any further acquisition of our stock will be in
violation of the decreased ownership limits.
Our charter also prohibits:
•
any person from beneficially or constructively owning shares of our stock to the extent such beneficial or constructive
ownership would result in us being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to
qualify as a REIT;
•
any person from transferring shares of our stock if the transfer would result in shares of our stock being beneficially
owned by fewer than 100 persons;
•
any person from beneficially owning or constructively owning shares of our stock to the extent such ownership would
result in us failing to qualify as a “domestically controlled qualified investment entity,” within the meaning of
Section 897(h) of the Code;
•
any person from beneficially or constructively owning shares of our stock to the extent such beneficial or constructive
ownership would cause us to own, beneficially or constructively, 9.9% or more of the ownership interests in a tenant
(other than a “taxable REIT subsidiary” of ours (as such term is defined in Section 856( l ) of the Code)) of our real
property within the meaning of Section 856(d)(2)(B) of the Code; and
•
any person from beneficially or constructively owning shares of our stock to the extent such beneficial or constructive
ownership would cause any “eligible independent contractor” that operates a “qualified health care property” on
behalf of a “taxable REIT subsidiary” of ours (as such terms are defined in Sections 856(d)(9)(A), 856(e)(6)(D)(i) and
856( l ) of the Code, respectively) to fail to qualify as such.
Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of our stock that will or
may violate the ownership limits, or any of the other restrictions on transfer and ownership of our stock, and any person who is the
intended transferee of shares of our stock that are transferred to the charitable trust described below, will be required to give
immediate written notice and, in the case of a proposed or attempted transaction, at least 15 days prior written notice, to us and
provide us with such other information as we may request in order to determine the effect of the transfer on our status as a REIT. The
provisions of our charter regarding restrictions on transfer and ownership of our stock will not apply if our board of directors
determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT.
Any attempted transfer of our stock which, if effective, would result in our stock being beneficially owned by fewer than 100
persons will be null and void and the proposed transferee will acquire no rights in such shares of our stock. Any attempted transfer of
our stock which, if effective, would violate any of the other restrictions described above will cause the number of shares causing the
violation (rounded up to the nearest whole share) to be automatically transferred to a trust for the exclusive benefit of one or more
charitable beneficiaries, and the proposed transferee will not acquire any rights in the shares. The trustee of the trust will be appointed
by us and will be unaffiliated with us and any proposed transferee of the shares. The automatic transfer will be effective as of the close
of business on the business day prior to the date of the violative transfer or other event that results in a transfer to the trust. If the
transfer to the trust as described above is not automatically effective, for any reason, to prevent violation of the applicable restrictions
on transfer and ownership of our stock, then the transfer of the shares will be null and void and the proposed transferee will acquire no
rights in such shares.
Shares of our stock held in trust will continue to be issued and outstanding shares. The proposed transferee will not benefit
economically from ownership of any shares of our stock held in the trust, will have no rights to
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dividends and no rights to vote or other rights attributable to the shares of stock held in the trust. The trustee of the trust will exercise
all voting rights and receive all dividends and other distributions with respect to shares held in the trust for the exclusive benefit of the
charitable beneficiary of the trust. Any dividend or other distribution paid prior to our discovery that shares have been transferred to a
trust as described above must be repaid by the recipient to the trustee upon demand. Subject to Maryland law, effective as of the date
that the shares have been transferred to the trust, the trustee will have the authority, at the trustee’s sole discretion, to rescind as void
any vote cast by a proposed transferee prior to our discovery that the shares have been transferred to the trust and to recast the vote in
accordance with the desires of the trustee acting for the benefit of the charitable beneficiary of the trust. However, if we have already
taken irreversible corporate action, then the trustee may not rescind and recast the vote.
If our board of directors or a committee thereof determines in good faith that a proposed transfer or other event has taken place
that violates the restrictions on transfer and ownership of our stock set forth in our charter, our board of directors or such committee
may take such action as it deems advisable to refuse to give effect to or to prevent such transfer, including, but not limited to, causing
us to redeem shares of stock, refusing to give effect to the transfer on our books or instituting proceedings to enjoin the transfer;
provided that any transfer or other event in violation of the above restrictions shall automatically result in the transfer to the trust
described above, and, where applicable, such transfer or other event shall be null and void as provided above irrespective of any action
or non-action by our board of directors or any committee or designee thereof.
Shares of stock transferred to the trustee will be deemed offered for sale to us, or our designee, at a price per share equal to the
lesser of (1) the price paid per share in the transaction that resulted in such transfer to the charitable trust (or, in the case of a devise or
gift, the market price of such stock at the time of such devise or gift) and (2) the market price of such stock on the date we, or our
designee, accept such offer. We may reduce the amount so payable to the proposed transferee by the amount of any dividend or other
distribution that we made to the proposed transferee before we discovered that the shares had been automatically transferred to the
trust and that are then owed by the proposed transferee to the trustee as described above, and we may pay the amount of any such
reduction to the trustee for distribution to the charitable beneficiary. We will have the right to accept such offer until the trustee has
sold the shares held in the charitable trust, as discussed below. Upon a sale to us, the interest of the charitable beneficiary in the shares
sold will terminate and the trustee will be required to distribute the net proceeds of the sale to the proposed transferee, and any
distributions held by the trustee with respect to such shares shall be paid to the charitable beneficiary.
If we do not buy the shares, the trustee will be required, within 20 days of receiving notice from us of a transfer of shares to the
trust, to sell the shares to a person or entity designated by the trustee who could own the shares without violating the ownership limits,
or the other restrictions on transfer and ownership of our stock. After selling the shares, the interest of the charitable beneficiary in the
shares transferred to the trust will terminate and the trustee will be required to distribute to the proposed transferee an amount equal to
the lesser of (1) the price paid by the proposed transferee for the shares or, if the proposed transferee did not give value for the shares
in connection with the event causing the shares to be held by the trust ( e.g. , in the case of a gift, devise or other such transaction), the
market price of such stock on the day of the event causing the shares to be held by the trust and (2) the sales proceeds (net of any
commissions and other expenses of sale) received by the trustee from the sale or other disposition of the shares. The trustee may
reduce the amount payable to the proposed transferee by the amount of any dividends or other distributions that we paid to the
proposed transferee before we discovered that the shares had been automatically transferred to the trust and that are then owed by the
proposed transferee to the trustee as described above. Any net sales proceeds in excess of the amount payable to the proposed
transferee will be paid immediately to the charitable beneficiary, together with any distributions thereon. If the proposed transferee
sells such shares prior to the discovery that such shares have been transferred to the trustee, then (a) such shares shall be deemed to
have been sold on behalf of the trust and (b) to the extent that the proposed transferee received an amount for such shares that exceeds
the amount that such proposed transferee was entitled to receive pursuant to this paragraph, such excess shall be paid to the trustee
upon demand. The proposed transferee will have no rights in the shares held by the trustee.
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Any certificates representing shares of our stock will bear a legend referring to the restrictions on transfer and ownership
described above.
Every owner of 5% or more (or such lower percentage as required by the Code or the regulations promulgated thereunder) of our
stock, within 30 days after the end of each taxable year, will be required to give us written notice stating the person’s name and
address, the number of shares of each class and series of our stock that the person beneficially owns, a description of the manner in
which the shares are held and any additional information that we request in order to determine the effect, if any, of the person’s
beneficial ownership on our status as a REIT and to ensure compliance with the ownership limits. In addition, any beneficial owner or
constructive owner of shares of our stock and any person or entity (including the stockholder of record) who holds shares of our stock
for a beneficial owner or constructive owner will be required to, on request, disclose to us in writing such information as we may
request in order to determine the effect, if any, of the stockholder’s beneficial and constructive ownership of our stock on our status as
a REIT and to comply, or determine our compliance with, the requirements of any governmental or taxing authority.
The restrictions on transfer and ownership described above could have the effect of delaying, deferring or preventing a change of
control in which holders of shares of our stock might receive a premium for their shares over the then prevailing price.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Broadridge Corporate Issuer Solutions, Inc. The transfer agent, registrar
and dividend disbursement agent for each series of preferred stock will be designated in the related prospectus supplement.
Listing
Our common stock is listed on the NASDAQ Global Select Market under the symbol “CTRE.”
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DESCRIPTION OF WARRANTS
We may offer warrants for the purchase of common stock, preferred stock, debt securities or other securities. We may issue
warrants independently or together with any offered securities. The warrants may be attached to or separate from those offered
securities. We will issue the warrants under one or more warrant agreements to be entered into between us and a warrant agent to be
named in the applicable prospectus supplement. The warrant agent will act solely as our agent in connection with the warrants and will
not assume any obligation or relationship of agency or trust for or with any holders or beneficial owners of warrants.
While the terms we have summarized below will generally apply to any future warrants we may offer under a prospectus
supplement, we will describe the particular terms of any warrants that we may offer in more detail in the applicable prospectus
supplement. The description in the applicable prospectus supplement of any warrants we offer may differ from the description
provided below and does not purport to be complete and is subject to and qualified in its entirety by reference to the provisions of the
applicable warrant agreement and warrant certificate, which will be filed with the SEC if we offer warrants. You should read the
applicable warrant certificate, the applicable warrant agreement and any applicable prospectus supplement in their entirety.
General
The prospectus supplement relating to any warrants that we may offer will contain the specific terms of the warrants. These
terms may include the following:
•
the title of the warrants;
•
the price or prices at which the warrants will be issued;
•
the designation, amount and terms of the securities for which the warrants are exercisable;
•
the designation and terms of the other securities, if any, with which the warrants are to be issued and the number of
warrants issued with each other security;
•
the aggregate number of warrants offered;
•
any provisions for adjustment of the number or amount of securities receivable upon exercise of the warrants or the
exercise price of the warrants;
•
the price or prices at which the securities purchasable upon exercise of the warrants may be purchased;
•
if applicable, the date on and after which the warrants and the securities purchasable upon exercise of the warrants
will be separately transferable;
•
a discussion of any material U.S. federal income tax considerations applicable to the holding and/or exercise of the
warrants;
•
the date on which the right to exercise the warrants will commence, and the date on which the right will expire;
•
the maximum or minimum number of warrants that may be exercised at any time;
•
information with respect to book-entry procedures, if any; and
•
any other terms of the warrants, including terms, procedures and limitations relating to the exchange and exercise of
the warrants.
Exercise of Warrants
Each warrant will entitle the holder of the warrant to purchase for cash the amount of common stock, preferred stock, debt
securities or other securities at the exercise price stated or determinable in the applicable prospectus supplement for the warrants.
Warrants may be exercised at any time up to the close of business on the expiration date shown in the applicable prospectus
supplement, unless otherwise specified in such prospectus supplement.
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After the close of business on the expiration date, unexercised warrants will become void. Warrants may be exercised as
described in the applicable prospectus supplement. When the warrant holder makes the payment and properly completes and signs the
warrant certificate at the corporate trust office of the warrant agent or any other office indicated in the prospectus supplement, we will,
as soon as possible, forward the common stock, preferred stock, debt securities or other securities that the warrant holder has
purchased. If the warrant holder exercises the warrant for less than all of the warrants represented by the warrant certificate, we will
issue a new warrant certificate for the remaining warrants.
Amendments and Supplements to the Warrant Agreements
We may amend or supplement a warrant agreement without the consent of the holders of the applicable warrants to cure
ambiguities in the warrant agreement, to cure or correct a defective provision in the warrant agreement, or to provide for other matters
under the warrant agreement that we and the warrant agent deem necessary or desirable, so long as, in each case, such amendments or
supplements do not materially adversely affect the interests of the holders of the warrants.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS
Although the following summary describes certain provisions of Maryland law and of our charter and bylaws, it is not a
complete description of the Maryland REIT Law, the MGCL provisions applicable to a Maryland real estate investment trust or our
charter and bylaws. These descriptions may not contain all of the information that is important to you. You are encouraged to read the
full text of our charter and bylaws, copies of which are filed as exhibits to the registration statement of which this prospectus is a part,
as well as the provisions of applicable Maryland law.
Amendments to Our Charter and Bylaws and Approval of Extraordinary Actions
Under Maryland law, a Maryland corporation generally cannot amend its charter, merge, consolidate, sell all or substantially all
of its assets, engage in a statutory share exchange or dissolve unless the action is advised by the board of directors and approved by
the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. However, a
Maryland corporation may provide in its charter for approval of these actions by a lesser percentage, but not less than a majority of all
of the votes entitled to be cast on the matter. Our charter provides that the affirmative vote of at least a majority of the votes entitled to
be cast on the matter is required to approve all charter amendments or extraordinary actions. However, Maryland law permits a
Maryland corporation to transfer all or substantially all of its assets without the approval of the stockholders of the corporation to one
or more persons if all of the equity interests of the person or persons are owned, directly or indirectly, by the corporation.
Our board of directors has the exclusive power to adopt, alter or repeal any provision of our bylaws and to adopt new bylaws.
Removal of Directors; Vacancies on Our Board of Directors
Our charter provides that, subject to the rights of holders of any class or series of preferred stock separately entitled to elect one
or more directors, a director may be removed only with “cause” (as defined in our charter), by the affirmative vote of two-thirds of the
combined voting power of all classes of stock entitled to vote in the election of directors, voting as a single class. We have elected to
be subject to certain provisions of the MGCL, as a result of which our board of directors has the exclusive power to fill vacancies on
the board of directors.
Business Combinations
Under the MGCL, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an
interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an
interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in
the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:
•
any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s
outstanding voting stock; or
•
an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question,
was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.
A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which
such person otherwise would have become an interested stockholder. However, in approving a transaction, a board of directors may
provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the
board of directors.
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After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder
generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
•
80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
•
two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the
interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an
affiliate or associate of the interested stockholder, voting together as a single class.
These supermajority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as
defined under the MGCL, for their shares in the form of cash or other consideration in the same form as previously paid by the
interested stockholder for its shares. The statute permits various exemptions from its provisions, including business combinations that
are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Our board of
directors has not opted out of the business combination provisions of the MGCL and, consequently, the five-year prohibition and the
supermajority vote requirements apply to business combinations between us and any interested stockholder of ours.
We are subject to the business combination provisions described above. However, our board of directors may elect to opt out of
the business combination provisions at any time in the future.
Control Share Acquisitions
Maryland law provides that issued and outstanding shares of a Maryland corporation acquired in a control share acquisition have
no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by
the acquiror, by officers, or by employees who are directors of the corporation are excluded from shares entitled to vote on the matter.
Control shares are voting shares of stock that, if aggregated with all other shares of stock owned by the acquiror or in respect of which
the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the
acquiror to, directly or indirectly, exercise voting power in electing directors within one of the following ranges of voting power:
•
one-tenth or more but less than one-third;
•
one-third or more but less than a majority; or
•
more than 50%.
Control shares do not include shares the acquiror is then entitled to vote as a result of having previously obtained stockholder
approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to
call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to
compel the calling of a special meeting is subject to the satisfaction or waiver of certain conditions, including an undertaking to pay
the expenses of the special meeting. If no request for a special meeting is made, the corporation may itself present the question at any
stockholder meeting.
If voting rights are not approved at the special meeting or if the acquiror does not deliver an acquiring person statement as
required by the statute, then the corporation may, subject to certain conditions and limitations, redeem for fair value any or all of the
control shares, except those for which voting rights have previously been approved. Fair value is determined, without regard to the
absence of voting rights for the control
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shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights
of the shares are considered and not approved. If voting rights for control shares are approved at a stockholder meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair
value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquiror
in the control share acquisition.
The control share acquisition statute does not apply (1) to shares acquired in a merger, consolidation or share exchange if the
corporation is a party to the transaction, or (2) to acquisitions approved or exempted by the charter or bylaws of the corporation.
Our bylaws contain a provision that exempts from the control share acquisition statute any and all acquisitions by any person of
shares of our stock. There can be no assurance that this provision will not be amended or eliminated at any time in the future.
Subtitle 8
Subtitle 8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Exchange
Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or by a resolution of its board of
directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions:
•
a classified board;
•
a two-thirds vote requirement for removing a director;
•
a requirement that the number of directors be fixed only by vote of the directors;
•
a requirement that a vacancy on the board be filled only by the affirmative vote of a majority of the remaining
directors in office and such director shall hold office for the remainder of the full term of the class of directors in
which the vacancy occurred and until a successor is elected and qualified; and
•
a majority requirement for the calling of a special meeting of stockholders.
Our charter provides that, at such time as we are eligible to make a Subtitle 8 election, we will elect to be subject to the
provisions of Subtitle 8 that vests in the board the exclusive power to fix the number of directors and requires that vacancies on the
board may be filled only by the remaining directors and for the remainder of the full term of the directors in which the vacancy
occurred. Our charter also provides for a classified board and two-thirds vote requirement for removing a director. Through provisions
in our bylaws unrelated to Subtitle 8, we require, unless called by our chairman, chief executive officer, president or the board of
directors, the request of stockholders entitled to cast not less than a majority of the votes entitled to be cast at such meeting to call a
special meeting of stockholders.
Special Meetings of the Stockholders
Our bylaws provide that our chairman, chief executive officer, president or board of directors has the power to call a special
meeting of stockholders. A special meeting of our stockholders to act on any matter that may properly be brought before a meeting of
stockholders will also be called by the secretary upon the written request of stockholders entitled to cast a majority of all the votes
entitled to be cast on such matter at the meeting and containing the information required by our bylaws. The secretary is required to
inform the requesting stockholders of the reasonably estimated cost of preparing and mailing the notice of meeting (including its
proxy materials), and the requesting stockholder is required to pay such estimated cost to the secretary prior to the preparation and
mailing of any notice for such special meeting.
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Transactions Outside the Ordinary Course of Business
Under the MGCL, a Maryland corporation generally may not dissolve, merge or consolidate with another entity, sell all or
substantially all of its assets or engage in a statutory share exchange unless the action is declared advisable by the board of directors
and approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter,
unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is specified in the
corporation’s charter. Our charter provides that these actions must be approved by a majority of all of the votes entitled to be cast on
the matter.
Dissolution of Our Company
The dissolution of our company must be declared advisable by a majority of our entire board of directors and approved by the
affirmative vote of the holders of a majority of all of the votes entitled to be cast on the matter.
Advance Notice of Director Nomination and New Business
Our charter and bylaws provide that, at any annual meeting of stockholders, nominations of individuals for election to the board
of directors and proposals of business to be considered by stockholders may be made only (1) pursuant to our notice of the meeting,
(2) by or at the direction of the board of directors or (3) by a stockholder who was a stockholder of record at the time of provision of
notice and at the time of the meeting, is entitled to vote at the meeting in the election of directors or on such other proposed business
and who has complied with the advance notice procedures of our bylaws. The stockholder generally must provide notice to the
secretary not less than 120 days nor more than 150 days prior to the first anniversary of the date of our proxy statement for the
solicitation of proxies for election of directors at the preceding year’s annual meeting.
Only the business specified in our notice of meeting may be brought before any special meeting of stockholders. Our bylaws
provide that nominations of individuals for election to our board of directors at a special meeting of stockholders may be made only
(1) by or at the direction of its board of directors or (2) if the special meeting has been called for the purpose of electing directors, by
any stockholder of record at the time of provision of the notice and at the time of the meeting, who is entitled to vote at the meeting in
the election of each individual so nominated and who has complied with the advance notice provisions set forth in our bylaws. Such
stockholder will be entitled to nominate one or more individuals, as the case may be, for election as a director if the stockholder’s
notice, containing the information required by our bylaws, is delivered to the secretary not earlier than the 120th day prior to such
special meeting and not later than 5:00 p.m., Eastern Time, on the later of (i) the 90th day prior to such special meeting or (ii) the tenth
day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by
the board of directors to be elected at such meeting.
The purpose of requiring stockholders to give advance notice of nominations and other proposals is to afford our board of
directors the opportunity to consider the qualifications of the proposed nominees or the advisability of the other proposals and, to the
extent considered necessary by our board of directors, to inform stockholders and make recommendations regarding the nominations
or other proposals. The advance notice procedures also permit a more orderly procedure for conducting stockholder meetings.
Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws
The restrictions on transfer and ownership of our stock prohibit any person from acquiring more than 9.8% in value or in number
of shares, whichever is more restrictive, of the outstanding shares of our common stock, or more than 9.8% in value of the outstanding
shares of all classes or series of our stock, without the prior consent of our board of directors. The business combination statute may
discourage others from trying to acquire more than 10% of our stock without the advance approval of our board of directors, and may
substantially delay or
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increase the difficulty of consummating any transaction with or change in control of us. Because our board of directors is able to
approve exceptions to the ownership limits and exempt transactions from the business combination statute, the ownership limits and
the business combination statute will not interfere with a merger or other business combination approved by our board of directors.
The power of our board of directors to classify and reclassify unissued common stock or preferred stock, and authorize us to issue
classified or reclassified shares, also could have the effect of delaying, deferring or preventing a change in control or other transaction.
Our charter provides for a staggered board of directors consisting of three classes of directors. Directors of each class will be
chosen for three-year terms upon the expiration of their current terms and each year one class of our directors will be elected by our
stockholders. The terms of the first, second and third classes expire in 2015, 2016 and 2017, respectively. We believe that
classification of our board of directors helps to assure the continuity and stability of our business strategies and policies as determined
by our board of directors. Additionally, there is no cumulative voting in the election of directors. This classified board provision could
have the effect of making the replacement of incumbent directors more time consuming and difficult. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in a majority of our board of directors. Thus, the classified
board provision could increase the likelihood that incumbent directors will retain their positions. The staggered terms of directors may
delay, defer or prevent a tender offer, an attempt to change control of us, even though a tender offer or change in control might be
believed by our stockholders to be in their best interest.
The provisions described above, along with other provisions of the MGCL and our charter and bylaws discussed above,
including provisions relating to the removal of directors and the filling of vacancies, the supermajority vote that is required to amend
certain provisions of our charter, the advance notice provisions and the procedures that stockholders are required to follow to request a
special meeting, alone or in combination, could have the effect of delaying, deferring or preventing a proxy contest, tender offer,
merger or other change in control of us that might involve a premium price for shares of our common stockholders or otherwise be in
the best interest of our stockholders, and could increase the difficulty of consummating any offer.
Indemnification of Directors and Executive Officers
Maryland law permits a Maryland corporation to include in its charter a provision that limits the liability of its directors and
officers to the corporation and its stockholders for money damages, except for liability resulting from (1) actual receipt of an improper
benefit or profit in money, property or services or (2) active or deliberate dishonesty that is established by a final judgment and that is
material to the cause of action. Our charter contains a provision that limits, to the maximum extent permitted by Maryland statutory or
decisional law, the liability of our directors and officers to us and our stockholders for money damages.
Maryland law requires a Maryland corporation (unless otherwise provided in its charter, which our charter does not) to
indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or
she is made or threatened to be made a party by reason of his or her service in that capacity. Maryland law permits a Maryland
corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements
and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be
made a party by reason of their service in that capacity unless it is established that:
•
the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was
committed in bad faith or (2) was the result of active and deliberate dishonesty;
•
the director or officer actually received an improper personal benefit in money, property or services; or
•
in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission
was unlawful.
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Under the MGCL, we may not indemnify a director or officer in a suit by us or in our right in which the director or officer was
adjudged liable to us or in a suit in which the director or officer was adjudged liable on the basis that personal benefit was improperly
received. A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to
indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the
basis that personal benefit was improperly received. However, indemnification for an adverse judgment in a suit by the corporation or
in its right, or for a judgment of liability on the basis that personal benefit was improperly received, will be limited to expenses.
In addition, Maryland law permits a Maryland corporation to advance reasonable expenses to a director or officer upon receipt
of (1) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct
necessary for indemnification and (2) a written undertaking by him or her, or on his or her behalf, to repay the amount paid or
reimbursed if it is ultimately determined that the standard of conduct was not met.
Our bylaws require, to the maximum extent permitted by Maryland law, that we indemnify and pay or reimburse the reasonable
expenses in advance of the final disposition of a proceeding of (1) any present or former director or officer and (2) any individual who,
while a director or officer and, at our request, serves or has served another corporation, REIT, limited liability company, partnership,
joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner, trustee, member or manager from and
against any claim or liability to which he or she may become subject or which he or she may incur by reason of his or her service in
any of the foregoing capacities.
In addition, our bylaws permit us, with the approval of our board of directors, to provide such indemnification and payment or
reimbursement of expenses in advance to any individual who served a predecessor of ours in any of the capacities described in the
paragraph above and to any employee or agent of ours or a predecessor of ours.
We have entered into indemnification agreements with each of our executive officers and directors providing for the
indemnification of, and advancement of expenses to, each such person in connection with claims, suits or proceedings arising as a
result of such person’s service as an officer or director of ours. We also maintain insurance on behalf of our directors and officers,
insuring them against liabilities that they may incur in such capacities or arising from this status.
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U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax consequences of an investment in our common stock. For
purposes of this section, references to “CareTrust,” “we,” “our” and “us” generally mean only CareTrust REIT, Inc. and not its
subsidiaries or other lower-tier entities, except as otherwise indicated. This summary is based on the Code, the regulations
promulgated by the U.S. Department of the Treasury (the “Treasury”), rulings and other administrative pronouncements issued by the
IRS, and judicial decisions, all as currently in effect, and all of which are subject to differing interpretations or to change, possibly
with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary
to any of the tax consequences described below. The summary is also based upon the assumption that we and our subsidiaries and
affiliated entities will operate in accordance with our and their applicable organizational documents. This summary is for general
information only and is not tax advice. It does not discuss any state, local or non-U.S. tax consequences relevant to us or an
investment in our common stock, and it does not purport to discuss all aspects of U.S. federal income taxation that may be important
to a particular investor in light of its investment or tax circumstances or to investors subject to special tax rules, such as:
•
financial institutions;
•
insurance companies;
•
broker-dealers;
•
regulated investment companies;
•
partnerships, other pass-through entities and trusts;
•
persons who hold our stock on behalf of other persons as nominees;
•
persons who receive our stock as compensation;
•
persons holding our stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other
integrated investment;
•
persons who are subject to alternative minimum tax;
and, except to the extent discussed below:
•
tax-exempt organizations; and
•
foreign investors.
This summary assumes that investors will hold their common stock as a capital asset, which generally means property held for
investment.
The U.S. federal income tax treatment of holders of our common stock depends, in some instances, on determinations of
fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be
available. In addition, the tax consequences to any particular stockholder of holding our common stock will depend on the
stockholder’s particular tax circumstances. You are urged to consult with your tax advisor as to the U.S. federal, state, local,
and foreign income and other tax consequences to you in light of your particular investment or tax circumstances of acquiring,
holding, exchanging, or otherwise disposing of our common stock.
Taxation of CareTrust
We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended
December 31, 2014. We believe that we have been organized, and have operated, in such a manner as to qualify for taxation as a REIT
under the applicable provisions of the Code.
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The law firm of Kirkland & Ellis LLP has acted as our tax counsel (“Tax Counsel”) in connection with the registration statement
of which this prospectus is a part. We currently operate, and intend to continue to operate, in a manner that will allow us to qualify to
be taxed as a REIT for U.S. federal income tax purposes, and we have received an opinion of Tax Counsel with respect to our
qualification to be taxed as a REIT, which is filed as an exhibit to the registration statement of which this prospectus forms a part.
Investors should be aware, however, that opinions of counsel are not binding on the IRS or any court. The opinion of Tax Counsel
represents only the view of Tax Counsel, based on its review and analysis of existing law and on certain representations as to factual
matters and covenants made by us, including representations relating to the values of our assets and the sources of our income. The
opinion is expressed as of the date issued. Tax Counsel will have no obligation to advise us or the holders of our common stock of any
subsequent change in the matters stated, represented or assumed or of any subsequent change in applicable law. Furthermore, both the
validity of the opinion of Tax Counsel and our qualification to be taxed as a REIT will depend on our satisfaction of certain asset,
income, organizational, distribution, stockholder ownership and other requirements on a continuing basis, the results of which will not
be monitored by Tax Counsel. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market
values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent
appraisals.
Taxation of REITs in General
As indicated above, our qualification and taxation as a REIT depend upon our ability to meet, on a continuing basis, various
qualification requirements imposed upon REITs by the Code. The material qualification requirements are summarized below under
“—Requirements for Qualification—General.” While we intend to continue to operate so that we qualify to be taxed as a REIT, no
assurance can be given that the IRS will not challenge our qualification or that we will be able to operate in accordance with the REIT
requirements in the future. See “—Failure to Qualify.”
Provided that we qualify to be taxed as a REIT, generally we will be entitled to a deduction for dividends that we pay and
therefore will not be subject to U.S. federal corporate income tax on our net REIT taxable income that is currently distributed to our
stockholders. This treatment substantially eliminates the “double taxation” at the corporate and stockholder levels that generally
results from an investment in a C corporation. A “C corporation” is a corporation that generally is required to pay tax at the corporate
level. Double taxation means taxation once at the corporate level when income is earned and once again at the stockholder level when
the income is distributed. In general, the income that we generate is taxed only at the stockholder level upon a distribution of
dividends to our stockholders.
U.S. stockholders that are individuals, trusts or estates are taxed on corporate dividends at a maximum U.S. federal income tax
rate of 20% (the same as long-term capital gains). With limited exceptions, however, dividends from us or from other entities that are
taxed as REITs are generally not eligible for this rate and will continue to be taxed at rates applicable to ordinary income. The highest
marginal noncorporate U.S. federal income tax rate applicable to ordinary income is 39.6%. See “—Taxation of
Stockholders—Taxation of Taxable U.S. Stockholders—Distributions.”
Any net operating losses, foreign tax credits and other tax attributes generally do not pass through to our stockholders, subject to
special rules for certain items such as the capital gains that we recognize. See “—Taxation of Stockholders—Taxation of Taxable U.S.
Stockholders—Distributions.”
Even if we qualify to be taxed as a REIT, we will nonetheless be subject to U.S. federal tax in the following circumstances:
•
We will be taxed at regular corporate rates on any undistributed net taxable income, including undistributed net
capital gains.
•
We may be subject to the “alternative minimum tax” on our items of tax preference, including any deductions of net
operating losses.
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•
If we have net income from prohibited transactions, which are, in general, sales or other dispositions of inventory or
property held primarily for sale to customers in the ordinary course of business, other than foreclosure property, such
income will be subject to a 100% tax. See “—Prohibited Transactions” and “—Foreclosure Property.”
•
If we elect to treat property that we acquire in connection with a foreclosure of a mortgage loan or certain leasehold
terminations as “foreclosure property,” we may thereby avoid the 100% tax on gain from a resale of that property (if
the sale would otherwise constitute a prohibited transaction), but the income from the sale or operation of the property
may be subject to corporate income tax at the highest applicable rate (currently 35%).
•
If we fail to satisfy the 75% gross income test or the 95% gross income test, as discussed below, but nonetheless
maintain our qualification to be taxed as a REIT because we satisfy other requirements, we will be subject to a 100%
tax on an amount based on the magnitude of the failure, as adjusted to reflect the profit margin associated with our
gross income.
•
If we violate the asset tests (other than certain de minimis violations) or other requirements applicable to REITs, as
described below, and yet maintain our qualification to be taxed as a REIT because there is reasonable cause for the
failure and other applicable requirements are met, we may be subject to a penalty tax. In that case, the amount of the
penalty tax will be at least $50,000 per failure, and, in the case of certain asset test failures, will be determined as the
amount of net income generated by the non-qualifying assets in question multiplied by the highest corporate tax rate
(currently 35%) if that amount exceeds $50,000 per failure.
•
If we fail to distribute during each calendar year at least the sum of (1) 85% of our ordinary income for such year,
(2) 95% of our capital gain net income for such year and (3) any undistributed net taxable income from prior periods,
we will be subject to a nondeductible 4% excise tax on the excess of the required distribution over the sum of (a) the
amounts that we actually distributed and (b) the amounts we retained and upon which we paid income tax at the
corporate level.
•
We may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet
record-keeping requirements intended to monitor our compliance with rules relating to the composition of a REIT’s
stockholders, as described below in “—Requirements for Qualification—General.”
•
A 100% tax may be imposed on transactions between us and a taxable REIT subsidiary (“TRS”) that do not reflect
arm’s-length terms.
•
If we recognize gain on the disposition of any asset held by us on the day after the effective date of the
Spin-Off (when our election to be subject to tax as a REIT became effective) during a specified period
(generally, ten years) thereafter, then we will owe tax at the highest corporate tax rate on the lesser of (1) the
excess of the fair market value of the asset on the effective date of our election to be subject to tax as a REIT
over its basis in the asset at such time, and (2) the gain recognized upon the disposition of such asset.
•
If after the effective date of our election to be subject to tax as a REIT, we acquire appreciated assets from a
corporation that is not a REIT (i.e., a corporation taxable under subchapter C of the Code) in a transaction in which
the adjusted tax basis of the assets in our hands is determined by reference to the adjusted tax basis of the assets in the
hands of the subchapter C corporation, we may be subject to tax on such appreciation at the highest corporate income
tax rate then applicable if we subsequently recognize gain on a disposition of any such assets during the five-year
period following their acquisition from the subchapter C corporation.
•
The earnings of our TRSs will generally be subject to U.S. federal corporate income tax.
In addition, we and our subsidiaries may be subject to a variety of taxes, including payroll taxes and state, local, and foreign
income, property, gross receipts and other taxes on our assets and operations. We could also be subject to tax in situations and on
transactions not presently contemplated.
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Requirements for Qualification—General
The Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;
(3) that would be taxable as a domestic corporation but for its election to be subject to tax as a REIT;
(4) that is neither a financial institution nor an insurance company subject to specific provisions of the Code;
(5) the beneficial ownership of which is held by 100 or more persons;
(6) in which, during the last half of each taxable year, not more than 50% in value of the outstanding stock is owned, directly or
indirectly, by five or fewer “individuals” (as defined in the Code to include specified tax-exempt entities); and
(7) that meets other tests described below, including with respect to the nature of its income and assets.
The Code provides that conditions (1) through (4) must be met during the entire taxable year, and that condition (5) must be met
during at least 335 days of a taxable year of twelve months, or during a proportionate part of a shorter taxable year. Conditions (5) and
(6) need not be met during a corporation’s initial tax year as a REIT (which, in our case, is expected to be 2014). Our charter provides
restrictions regarding the ownership and transfers of shares of our stock, which are intended to assist us in satisfying the stock
ownership requirements described in conditions (5) and (6) above, among other purposes. These restrictions, however, may not ensure
that we will, in all cases, be able to satisfy the share ownership requirements described in conditions (5) and (6) above. If we fail to
satisfy these share ownership requirements, except as provided in the next sentence, our status as a REIT will terminate. If, however,
we comply with the rules contained in applicable Treasury regulations that require us to ascertain the actual ownership of our shares
and we do not know, or would not have known through the exercise of reasonable diligence, that we failed to meet the requirement
described in condition (6) above, we will be treated as having met this requirement.
To monitor compliance with the stock ownership requirements, we generally are required to maintain records regarding the
actual ownership of our stock. To do so, we must demand written statements each year from the record holders of significant
percentages of our stock pursuant to which the record holders must disclose the actual owners of the stock ( i.e ., the persons required
to include our dividends in their gross income). We must maintain a list of those persons failing or refusing to comply with this
demand as part of our records. We could be subject to monetary penalties if we fail to comply with these record-keeping requirements.
If such record holder fails or refuses to comply with the demands, such record holder will be required by Treasury regulations to
submit a statement with such record holder’s tax return disclosing such record holder’s actual ownership of our stock and other
information.
In addition, a corporation generally may not elect to become a REIT unless its taxable year is the calendar year. We have
adopted December 31 as our year-end, and therefore satisfy this requirement.
Effect of Subsidiary Entities
Ownership of Partnership Interests
If we are a partner in an entity that is treated as a partnership for U.S. federal income tax purposes, Treasury regulations provide
that we are deemed to own our proportionate share of the partnership’s assets, and to earn our proportionate share of the partnership’s
income, for purposes of the asset and gross income tests applicable to REITs. Our proportionate share of a partnership’s assets and
income is based on our capital interest in the
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partnership (except that for purposes of the 10% value test, described below, our proportionate share of the partnership’s assets is
based on our proportionate interest in the equity and certain debt securities issued by the partnership). In addition, the assets and gross
income of the partnership are deemed to retain the same character in our hands. Thus, our proportionate share of the assets and items
of income of any of our subsidiary partnerships will be treated as our assets and items of income for purposes of applying the REIT
requirements.
If we become a limited partner or non-managing member in any partnership or limited liability company and such entity takes or
expects to take actions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose of our interest
in such entity. In addition, it is possible that a partnership or limited liability company could take an action which could cause us to
fail a gross income or asset test, and that we would not become aware of such action in time to dispose of our interest in the
partnership or limited liability company or take other corrective action on a timely basis. In that case, we could fail to qualify to be
taxed as a REIT unless we were entitled to relief, as described below under “—Income Tests—Failure to Satisfy the Gross Income
Tests” and “—Asset Tests.”
Disregarded Subsidiaries
If we own a corporate subsidiary that is a “qualified REIT subsidiary,” that subsidiary is generally disregarded as a separate
entity for U.S. federal income tax purposes, and all of the subsidiary’s assets, liabilities and items of income, deduction and credit are
treated as our assets, liabilities and items of income, deduction and credit, including for purposes of the gross income and asset tests
applicable to REITs. A qualified REIT subsidiary is any corporation, other than a TRS (as described below), that is directly or
indirectly wholly owned by a REIT. Other entities that are wholly owned by us, including single member limited liability companies
that have not elected to be taxed as corporations for U.S. federal income tax purposes, are also generally disregarded as separate
entities for U.S. federal income tax purposes, including for purposes of the REIT income and asset tests. Disregarded subsidiaries,
along with any partnerships in which we hold an equity interest, are sometimes referred to herein as “pass-through subsidiaries.”
In the event that a disregarded subsidiary of ours ceases to be wholly owned—for example, if any equity interest in the
subsidiary is acquired by a person other than us or another disregarded subsidiary of ours—the subsidiary’s separate existence would
no longer be disregarded for U.S. federal income tax purposes. Instead, the subsidiary would have multiple owners and would be
treated as either a partnership or a taxable corporation. Such an event could, depending on the circumstances, adversely affect our
ability to satisfy the various asset and gross income requirements applicable to REITs, including the requirement that REITs generally
may not own, directly or indirectly, more than 10% of the securities of another corporation. See “—Asset Tests” and “—Income
Tests.”
Taxable REIT Subsidiaries
In general, we may jointly elect with a subsidiary corporation, whether or not wholly owned, to treat such subsidiary corporation
as a TRS. We generally may not own more than 10% of the securities of a taxable corporation, as measured by voting power or value,
unless we and such corporation elect to treat such corporation as a TRS. The separate existence of a TRS or other taxable corporation
is not ignored for U.S. federal income tax purposes. Accordingly, a TRS or other taxable subsidiary corporation generally is subject to
corporate income tax on its earnings, which may reduce the cash flow that we and our subsidiaries generate in the aggregate, and may
reduce our ability to make distributions to our stockholders.
We are not treated as holding the assets of a TRS or other taxable subsidiary corporation or as receiving any income that the
subsidiary earns. Rather, the stock issued by a taxable subsidiary corporation to us is an asset in our hands, and we treat the dividends
paid to us from such taxable subsidiary corporation, if any, as income. This treatment can affect our income and asset test calculations,
as described below. Because we do not include the assets and income of TRSs or other taxable subsidiary corporations on a
look-through basis in determining our
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compliance with the REIT requirements, we may use such entities to undertake indirectly activities that the REIT rules might
otherwise preclude us from doing directly or through pass-through subsidiaries. For example, we may use TRSs or other taxable
subsidiary corporations to perform services or conduct activities that give rise to certain categories of income or to conduct activities
that, if conducted by us directly, would be treated in our hands as prohibited transactions.
A TRS may not directly or indirectly operate or manage a healthcare facility. The Code defines a “healthcare facility” generally
to mean a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care facility, or other licensed
facility which extends medical or nursing or ancillary services to patients. If the IRS were to treat a subsidiary corporation of ours as
directly or indirectly operating or managing a healthcare facility, such subsidiary would not qualify as a TRS, which could jeopardize
our REIT qualification under the REIT 5% and 10% gross asset tests.
Although a TRS may not operate or manage a healthcare facility, rent received by a REIT from the lease of a healthcare facility
to a TRS may qualify as “rents from real property” for purposes of both the 75% and 95% gross income tests, provided that the facility
is operated by an “eligible independent contractor.” Qualification as an eligible independent contractor, however, involves the
application of highly technical and complex Code provisions for which only limited authorities exist.
The TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to
an appropriate level of corporate taxation. Further, the rules impose a 100% excise tax on transactions between a TRS and its parent
REIT or the REIT’s tenants that are not conducted on an arm’s-length basis. We intend that all of our transactions with our TRSs, if
any, will be conducted on an arm’s-length basis.
Income Tests
In order to qualify to be taxed as a REIT, we must satisfy two gross income requirements on an annual basis. First, at least 75%
of our gross income for each taxable year, excluding gross income from sales of inventory or dealer property in “prohibited
transactions,” discharge of indebtedness and certain hedging transactions, generally must be derived from “rents from real property,”
gains from the sale of real estate assets (excluding gain from the sale of a “nonqualified publicly offered REIT debt instrument”
(defined as a real estate asset that qualifies as such only because of the rule treating debt instruments issued by publicly offered REITs
as real estate assets) for taxable years beginning after December 31, 2015), interest income derived from mortgage loans secured by
real property (including certain types of mortgage-backed securities), dividends received from other REITs and specified income from
temporary investments. Second, at least 95% of our gross income in each taxable year, excluding gross income from prohibited
transactions, discharge of indebtedness and certain hedging transactions, must be derived from some combination of income that
qualifies under the 75% gross income test described above, as well as other dividends, interest, and gain from the sale or disposition of
stock or securities, which need not have any relation to real property. Income and gain from certain hedging transactions will be
excluded from both the numerator and the denominator for purposes of both the 75% and 95% gross income tests.
Rents from Real Property
Rents we receive from a tenant will qualify as “rents from real property” for the purpose of satisfying the gross income
requirements for a REIT described above only if all of the conditions described below are met.
•
The amount of rent is not based in whole or in part on the income or profits of any person. However, an amount we
receive or accrue will generally not be excluded from the term “rents from real property” solely because it is based on
a fixed-percentage or percentages of receipts or sales;
•
Neither we nor an actual or constructive owner of 10% or more of our stock actually or constructively owns 10% or
more of the interests in the assets or net profits of a noncorporate tenant, or, if the tenant
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is a corporation (but excluding any TRS), 10% or more of the total combined voting power of all classes of stock entitled to
vote or 10% or more of the total value of all classes of stock of the tenant. Rents we receive from such a tenant that is a
TRS of ours, however, will not be excluded from the definition of “rents from real property” as a result of this condition if
at least 90% of the space at the property to which the rents relate is leased to third parties, and the rents paid by the TRS are
substantially comparable to rents paid by our other tenants for comparable space. Whether rents paid by a TRS are
substantially comparable to rents paid by other tenants is determined at the time the lease with the TRS is entered into,
extended, and modified, if such modification increases the rents due under such lease. Notwithstanding the foregoing,
however, if a lease with a “controlled TRS” is modified and such modification results in an increase in the rents payable by
such TRS, any such increase will not qualify as “rents from real property.” For purposes of this rule, a “controlled TRS” is
a TRS in which the parent REIT owns stock possessing more than 50% of the voting power or more than 50% of the total
value of the outstanding stock of such TRS. In addition, rents we receive from a tenant that also is our TRS will not be
excluded from the definition of “rents from real property” as a result of our ownership interest in the TRS if the property to
which the rents relate is a qualified lodging facility or a qualified health care property, and such property is operated on
behalf of the TRS by a person who is an independent contractor and certain other requirements are met. Our TRSs will be
subject to U.S. federal income tax on their income from the operations of these properties;
•
Rent attributable to personal property that is leased in connection with a lease of real property is not greater than 15%
of the total rent received under the lease. If this condition is not met, then the portion of the rent attributable to
personal property will not qualify as “rents from real property”; and
•
We generally do not operate or manage the property or furnish or render services to our tenants, subject to a 1% de
minimis and except as provided below. We are permitted, however, to perform directly certain services that are
“usually or customarily rendered” in connection with the rental of space for occupancy only and are not otherwise
considered “rendered to the occupant” of the property. Examples of these permitted services include the provision of
light, heat or other utilities, trash removal and general maintenance of common areas. In addition, we are permitted to
employ an independent contractor from whom we derive no revenues, or a TRS, which may be wholly or partially
owned by us, to provide non-customary services to our tenants without causing the rent that we receive from those
tenants to fail to qualify as “rents from real property.”
Interest Income
Interest income constitutes qualifying mortgage interest for purposes of the 75% gross income test (as described above) to the
extent that the obligation upon which such interest is paid is secured by a mortgage on real property. If we receive interest income
with respect to a mortgage loan that is secured by both real property and other property, and the highest principal amount of the loan
outstanding during a taxable year exceeds the fair market value of the real property on the date that we acquired or originated the
mortgage loan, the interest income will be apportioned between the real property and the other collateral, and our income from the
arrangement will qualify for purposes of the 75% gross income test only to the extent that the interest is allocable to the real property.
Even if a loan is not secured by real property, or is undersecured, the income that it generates may nonetheless qualify for purposes of
the 95% gross income test. For these purposes, the term “interest” generally does not include any amount received or accrued, directly
or indirectly, if the determination of all or some of the amount depends in any way on the income or profits of any person. However,
an amount received or accrued will generally not be excluded from the term “interest” solely by reason of being based on a fixed
percentage or percentages of receipts or sales.
Dividend Income
We may directly or indirectly receive distributions from TRSs or other corporations that are not REITs or qualified REIT
subsidiaries. These distributions generally are treated as dividend income to the extent of the
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earnings and profits of the distributing corporation. Such distributions will generally constitute qualifying income for purposes of the
95% gross income test, but not for purposes of the 75% gross income test. Any dividends that we receive from another REIT,
however, will be qualifying income for purposes of both the 95% and 75% gross income tests.
Fee Income
Any fee income that we earn will generally not be qualifying income for purposes of either gross income test. Any fees earned
by a TRS, however, will not be included for purposes of our gross income tests.
Hedging Transactions
Any income or gain that we or our pass-through subsidiaries derive from instruments that hedge certain risks, such as the risk of
changes in interest rates, will be excluded from gross income for purposes of both the 75% and 95% gross income tests, provided that
specified requirements are met, including the requirement that the instrument is entered into during the ordinary course of our
business, the instrument hedges risks associated with indebtedness issued by us or our pass-through subsidiary that is incurred or to be
incurred to acquire or carry “real estate assets” (as described below under “—Asset Tests”), and the instrument is properly identified
as a hedge along with the risk that it hedges within prescribed time periods. Most likely, income and gain from all other hedging
transactions will not be qualifying income for either the 95% or 75% gross income test.
Failure to Satisfy the Gross Income Tests
If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, including as a result of rents received
by us from Ensign failing to qualify as “rents from real property,” we may still qualify to be taxed as a REIT for such year if we are
entitled to relief under applicable provisions of the Code. These relief provisions will be generally available if (1) our failure to meet
these tests was due to reasonable cause and not due to willful neglect and (2) following our identification of the failure to meet the
75% or 95% gross income test for any taxable year, we file a schedule with the IRS setting forth each item of our gross income for
purposes of the 75% or 95% gross income test for such taxable year in accordance with Treasury regulations, which have not yet been
issued. It is not possible to state whether we would be entitled to the benefit of these relief provisions in all circumstances. If these
relief provisions are inapplicable to a particular set of circumstances, we will not qualify to be taxed as a REIT. Even if these relief
provisions apply, and we retain our status as a REIT, the Code imposes a tax based upon the amount by which we fail to satisfy the
particular gross income test.
Asset Tests
At the close of each calendar quarter, we must also satisfy certain tests relating to the nature of our assets. First, at least 75% of
the value of our total assets must be represented by some combination of “real estate assets,” cash, cash items, U.S. government
securities, and, under some circumstances, stock or debt instruments purchased with new capital. For this purpose, real estate assets
include interests in real property (including interests in mortgages on real property, and for taxable years beginning after
December 31, 2015, mortgages on interests in real property) and stock of other corporations that qualify as REITs, as well as some
kinds of mortgage-backed securities and mortgage loans. For taxable years beginning after December 31, 2015, the term “real estate
assets” also includes debt instruments issued by publicly offered REITs, personal property securing a mortgage secured by both real
property and personal property if the fair market value of such personal property does not exceed 15% of the total fair market value of
all such property, and personal property leased in connection with a lease of real property for which the rent attributable to personal
property is not greater than 15% of the total rent received under the lease. Assets that do not qualify for purposes of the 75% asset test
are subject to the additional asset tests described below.
Second, not more than 25% of the value of our total assets may be represented by securities (including securities of TRSs), other
than those securities includible in the 75% asset test.
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Third, the value of any one issuer’s securities that we own may not exceed 5% of the value of our total assets, and we may not
own more than 10% of any one issuer’s outstanding securities, as measured by either voting power or value. The 5% and 10% asset
tests do not apply to securities of TRSs and qualified REIT subsidiaries, and the 10% asset test does not apply to “straight debt”
having specified characteristics and to certain other securities described below. Solely for purposes of the 10% asset test, the
determination of our interest in the assets of a partnership or limited liability company in which we own an interest will be based on
our proportionate interest in any securities issued by the partnership or limited liability company, excluding for this purpose certain
securities described in the Code.
Fourth, the aggregate value of all securities of TRSs that we hold, together with other non-qualified assets (such as furniture and
equipment or other tangible personal property, or non-real estate securities) may not, in the aggregate, exceed 25% (20% for taxable
years beginning after December 31, 2017) of the value of our total assets.
Fifth, for taxable years beginning after December 31, 2015, not more than 25% of the value of our total assets may be
represented by debt instruments of publicly offered REITs to the extent those debt instruments would not be real estate assets but for
the inclusion of debt instruments of publicly offered REITs in the meaning of real estate assets effective for taxable years beginning
after December 31, 2015, as described above.
Notwithstanding the general rule, as noted above, that for purposes of the REIT income and asset tests we are treated as owning
our proportionate share of the underlying assets of a subsidiary partnership, if we hold indebtedness issued by a partnership, the
indebtedness will be subject to, and may cause a violation of, the asset tests unless the indebtedness is a qualifying mortgage asset or
other conditions are met. Similarly, although stock of another REIT is a qualifying asset for purposes of the REIT asset tests, any
non-mortgage debt that is issued by another REIT may not so qualify (although such debt will not be treated as “securities” for
purposes of the 10% asset test, as explained below).
Certain securities will not cause a violation of the 10% asset test described above. Such securities include instruments that
constitute “straight debt,” which term generally excludes, among other things, securities having contingency features. A security does
not qualify as “straight debt” where a REIT (or a controlled TRS of the REIT) owns other securities of the same issuer which do not
qualify as straight debt, unless the value of those other securities constitute, in the aggregate, 1% or less of the total value of that
issuer’s outstanding securities. In addition to straight debt, the Code provides that certain other securities will not violate the 10% asset
test. Such securities include (1) any loan made to an individual or an estate, (2) certain rental agreements pursuant to which one or
more payments are to be made in subsequent years (other than agreements between a REIT and certain persons related to the REIT
under attribution rules), (3) any obligation to pay rents from real property, (4) securities issued by governmental entities that are not
dependent in whole or in part on the profits of (or payments made by) a nongovernmental entity, (5) any security (including debt
securities) issued by another REIT and (6) any debt instrument issued by a partnership if the partnership’s income is of a nature that it
would satisfy the 75% gross income test described above under “—Income Tests.” In applying the 10% asset test, a debt security
issued by a partnership is not taken into account to the extent, if any, of the REIT’s proportionate interest in the equity and certain debt
securities issued by that partnership.
No independent appraisals have been obtained to support our conclusions as to the value of our total assets or the value of any
particular security or securities. Moreover, the values of some assets may not be susceptible to a precise determination, and values are
subject to change in the future. Furthermore, the proper classification of an instrument as debt or equity for U.S. federal income tax
purposes may be uncertain in some circumstances, which could affect the application of the REIT asset requirements. Accordingly,
there can be no assurance that the IRS will not contend that our interests in our subsidiaries or in the securities of other issuers will not
cause a violation of the REIT asset tests.
However, certain relief provisions are available to allow REITs to satisfy the asset requirements or to maintain REIT
qualification notwithstanding certain violations of the asset and other requirements. For example,
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if we should fail to satisfy the asset tests at the end of a calendar quarter such a failure would not cause us to lose our REIT
qualification if (a) we satisfied the asset tests at the close of the preceding calendar quarter and (b) the discrepancy between the value
of our assets and the asset requirements was not wholly or partly caused by an acquisition of non-qualifying assets, but instead arose
from changes in the relative market values of our assets. If the condition described in (b) were not satisfied, we still could avoid
disqualification by eliminating any discrepancy within 30 days after the close of the calendar quarter in which it arose or by making
use of the relief provisions described above.
In the case of de minimis violations of the 10% and 5% asset tests, a REIT may maintain its qualification despite a violation of
such requirements if (i) the value of the assets causing the violation does not exceed the lesser of 1% of the REIT’s total assets and
$10,000,000 and (ii) the REIT either disposes of the assets causing the failure within six months after the last day of the quarter in
which it identifies the failure, or the relevant tests are otherwise satisfied within that time frame.
Even if we did not qualify for the foregoing relief provisions, one additional provision allows a REIT that fails one or more of
the asset requirements to nevertheless maintain its REIT qualification if (1) the REIT provides the IRS with a description of each asset
causing the failure, (2) the failure is due to reasonable cause and not willful neglect, (3) the REIT pays a tax equal to the greater of
(a) $50,000 per failure and (b) the product of the net income generated by the assets that caused the failure multiplied by the highest
applicable corporate tax rate (currently 35%) and (4) the REIT either disposes of the assets causing the failure within six months after
the last day of the quarter in which it identifies the failure, or otherwise satisfies the relevant asset tests within that time frame.
Annual Distribution Requirements
In order to qualify to be taxed as a REIT, we are required to distribute dividends, other than capital gain dividends, to our
stockholders in an amount at least equal to:
(1) the sum of
(a)
90% of our REIT taxable income, computed without regard to our net capital gains and the deduction for dividends
paid; and
(b)
90% of our after tax net income, if any, from foreclosure property (as described below); minus
(2) the excess of the sum of specified items of noncash income over 5% of our REIT taxable income, computed without regard
to our net capital gain and the deduction for dividends paid.
We generally must make these distributions in the taxable year to which they relate, or in the following taxable year if declared
before we timely file our tax return for the year and if paid with or before the first regular dividend payment after such declaration.
These distributions will be treated as received by our stockholders in the year in which paid. In order for distributions to be counted as
satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, unless (for distributions
made in taxable years beginning after December 31, 2014) we qualify as a “publicly offered REIT,” the distributions must not be
“preferential dividends.” A dividend is not a preferential dividend if the distribution is (i) pro rata among all outstanding shares of
stock within a particular class and (ii) in accordance with any preferences among different classes of stock as set forth in our
organizational documents.
To the extent that we distribute at least 90%, but less than 100%, of our REIT taxable income, as adjusted, we will be subject to
tax at ordinary corporate tax rates on the retained portion. We may elect to retain, rather than distribute, some or all of our net
long-term capital gains and pay tax on such gains. In this case, we could elect for our stockholders to include their proportionate
shares of such undistributed long-term capital gains in income, and to receive a corresponding credit for their share of the tax that we
paid. Our stockholders would then increase the adjusted basis of their stock by the difference between (1) the amounts of capital gain
dividends that we designated and that they include in their taxable income, minus (2) the tax that we paid on their behalf with respect
to that income.
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To the extent that in the future we may have available net operating losses carried forward from prior tax years, such losses may
reduce the amount of distributions that we must make in order to comply with the REIT distribution requirements. Such losses,
however, will generally not affect the tax treatment to our stockholders of any distributions that are actually made. See “—Taxation of
Stockholders—Taxation of Taxable U.S. Stockholders—Distributions.”
If we fail to distribute during each calendar year at least the sum of (1) 85% of our ordinary income for such year, (2) 95% of our
capital gain net income for such year and (3) any undistributed net taxable income from prior periods, we will be subject to a
nondeductible 4% excise tax on the excess of such required distribution over the sum of (a) the amounts actually distributed, plus
(b) the amounts of income we retained and on which we have paid corporate income tax.
We expect that our REIT taxable income will be less than our cash flow because of depreciation and other noncash charges
included in computing REIT taxable income. Accordingly, we anticipate that we will generally have sufficient cash or liquid assets to
enable us to satisfy the distribution requirements described above. However, from time to time, we may not have sufficient cash or
other liquid assets to meet these distribution requirements due to timing differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and deduction of expenses in determining our taxable income. In
addition, we may decide to retain our cash, rather than distribute it, in order to repay debt, acquire assets, or for other reasons. If these
timing differences occur, we may borrow funds to pay dividends or pay dividends through the distribution of other property (including
shares of our stock) in order to meet the distribution requirements, while preserving our cash. Alternatively, we may declare a taxable
dividend payable in cash or stock at the election of each stockholder, where the aggregate amount of cash to be distributed in such
dividend may be subject to limitation. In such case, for U.S. federal income tax purposes, taxable stockholders receiving such
dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated
earnings and profits.
If our taxable income for a particular year is subsequently determined to have been understated, we may be able to rectify a
resultant failure to meet the distribution requirements for a year by paying “deficiency dividends” to stockholders in a later year,
which may be included in our deduction for dividends paid for the earlier year. In this case, we may be able to avoid losing REIT
qualification or being taxed on amounts distributed as deficiency dividends, subject to the 4% excise tax described above. We will be
required to pay interest based on the amount of any deduction taken for deficiency dividends.
For purposes of the 90% distribution requirement and excise tax described above, any dividend that we declare in October,
November or December of any year and that is payable to a stockholder of record on a specified date in any such month will be treated
as both paid by us and received by the stockholder on December 31 of such year, provided that we actually pay the dividend before
January 31 of the following calendar year.
Prohibited Transactions
Net income that we derive from a prohibited transaction is subject to a 100% tax. The term “prohibited transaction” generally
includes a sale or other disposition of property (other than foreclosure property, as discussed below) that is held as inventory or
primarily for sale to customers in the ordinary course of a trade or business. We intend to conduct our operations so that no asset that
we own (or are treated as owning) will be treated as, or as having been, held as inventory or for sale to customers, and that a sale of
any such asset will not be treated as having been in the ordinary course of our business. Whether property is held as inventory or
“primarily for sale to customers in the ordinary course of a trade or business” depends on the particular facts and circumstances. No
assurance can be given that any property that we sell will not be treated as inventory or property held for sale to customers, or that we
can comply with certain safe-harbor provisions of the Code that would prevent such treatment. The 100% tax does not apply to gains
from the sale of property that is held through a TRS or other taxable corporation, although such income will be subject to tax in the
hands of the corporation at regular corporate rates. We intend to structure our activities to avoid prohibited transaction
characterization.
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Like-Kind Exchanges
We may dispose of properties in transactions intended to qualify as like-kind exchanges under the Code. Such like-kind
exchanges are intended to result in the deferral of gain for U.S. federal income tax purposes. The failure of any such transaction to
qualify as a like-kind exchange could require us to pay federal income tax, possibly including the 100% prohibited transaction tax,
depending on the facts and circumstances surrounding the particular transaction.
Derivatives and Hedging Transactions
We may enter into hedging transactions, including with respect to foreign currency exchange rate and interest rate exposure on
one or more of our assets or liabilities. Any such hedging transactions could take a variety of forms, including the use of derivative
instruments such as swap contracts, cap or floor contracts, futures or forward contracts and options. Except to the extent provided by
Treasury regulations, any income from a hedging transaction we enter into (1) in the normal course of our business primarily to
manage risk of interest rate changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations
incurred or to be incurred, to acquire or carry real estate assets, which is clearly identified as specified in Treasury regulations before
the close of the day on which it was acquired, originated, or entered into, including gain from the sale or disposition of a position in
such a transaction and (2) primarily to manage risk of currency fluctuations with respect to any item of income or gain that would be
qualifying income under the 75% or 95% income tests, which is clearly identified as such before the close of the day on which it was
acquired, originated, or entered into, will not constitute gross income for purposes of the 75% or 95% gross income tests. For taxable
years beginning after December 31, 2015, income from new transactions entered into to hedge the income or loss from prior hedging
transactions, where the indebtedness or property which was the subject of the prior hedging transaction was extinguished or disposed
of, will not constitute gross income for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of
hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both the 75%
and 95% gross income tests. Moreover, to the extent that a position in a hedging transaction has positive value at any particular point
in time, it may be treated as an asset that does not qualify for purposes of the REIT asset tests. We intend to structure any hedging
transactions in a manner that does not jeopardize our qualification to be taxed as a REIT. We may conduct some or all of our hedging
activities (including hedging activities relating to currency risk) through a TRS or other corporate entity, the income from which may
be subject to U.S. federal income tax, rather than by participating in the arrangements directly or through pass-through subsidiaries.
No assurance can be given, however, that our hedging activities will not give rise to income or assets that do not qualify for purposes
of the REIT tests, or that our hedging activities will not adversely affect our ability to satisfy the REIT qualification requirements.
Foreclosure Property
Foreclosure property is real property and any personal property incident to such real property (1) that we acquire as the result of
having bid in the property at foreclosure, or having otherwise reduced the property to ownership or possession by agreement or
process of law, after a default (or upon imminent default) on a lease of the property or a mortgage loan held by us and secured by the
property, (2) for which we acquired the related loan or lease at a time when default was not imminent or anticipated and (3) with
respect to which we made a proper election to treat the property as foreclosure property. Foreclosure property also includes certain
qualified healthcare property acquired by a REIT as the result of the termination or expiration of a lease of such property (other than
by reason of a default, or the imminence of a default, on the lease). In general, we may operate a qualified healthcare facility acquired
in this manner through, and in certain circumstances may derive income from, an independent contractor for two years (or up to six
years if extensions are granted). For purposes of this rule, a “qualified healthcare property” means a hospital, nursing facility, assisted
living facility, congregate care facility, qualified continuing care facility, or other licensed facility which extends medical or nursing or
ancillary services to patients and which is operated by a provider which is eligible for participation in the Medicare program with
respect to such facility, along with any real property or personal property necessary or incidental to the use of any such facility.
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We will generally be subject to tax at the maximum corporate rate (currently 35%) on any net income from foreclosure property,
including any gain from the disposition of the foreclosure property, other than income that would otherwise be qualifying income for
purposes of the 75% gross income test. Any gain from the sale of property for which a foreclosure property election has been made
will not be subject to the 100% tax on gains from prohibited transactions described above, even if the property would otherwise
constitute inventory or dealer property. We do not anticipate receiving any income from foreclosure property that does not qualify for
purposes of the 75% gross income test.
Penalty Tax
Any redetermined rents, redetermined deductions, excess interest or (for taxable years beginning after December 31, 2015)
redetermined TRS service income we generate will be subject to a 100% penalty tax. In general, redetermined rents are rents from real
property that are overstated as a result of any services furnished to any of our tenants by a TRS, redetermined deductions and excess
interest represent any amounts that are deducted by a TRS for amounts paid to us that are in excess of the amounts that would have
been deducted based on arm’s-length negotiations or if the interest payments were at a commercially reasonable rate, and
redetermined TRS service income generally represents income of a TRS that is understated as a result of services provided to us or on
our behalf. Rents that we receive will not constitute redetermined rents if they qualify for certain safe harbor provisions contained in
the Code.
From time to time, our TRS may provide services to our tenants. We intend to set the fees paid to our TRS for such services at
arm’s-length rates, although the fees paid may not satisfy the safe-harbor provisions described above. These determinations are
inherently factual, and the IRS has broad discretion to assert that amounts paid between related parties should be reallocated to clearly
reflect their respective incomes. If the IRS successfully made such an assertion, we would be required to pay a 100% penalty tax on
the excess of an arm’s-length fee for tenant services over the amount actually paid.
Failure to Qualify
If we fail to satisfy one or more requirements for REIT qualification other than the income or asset tests, we could avoid
disqualification as a REIT if our failure is due to reasonable cause and not to willful neglect and we pay a penalty of $50,000 for each
such failure. Relief provisions are also available for failures of the income tests and asset tests, as described above in “—Income
Tests” and “—Asset Tests.”
If we fail to qualify for taxation as a REIT in any taxable year, and the relief provisions described above do not apply, we will be
subject to tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. We cannot deduct
distributions to stockholders in any year in which we are not a REIT, nor would we be required to make distributions in such a year. In
this situation, to the extent of current and accumulated earnings and profits (as determined for U.S. federal income tax purposes),
distributions to stockholders will be taxable as regular corporate dividends. Such dividends paid to U.S. stockholders that are
individuals, trusts and estates may be taxable at the preferential income tax rates (i.e., the 20% maximum U.S. federal rate) for
qualified dividends. In addition, subject to the limitations of the Code, corporate distributees may be eligible for the dividends
received deduction. Unless we are entitled to relief under specific statutory provisions, we will also be disqualified from re-electing to
be taxed as a REIT for the four taxable years following the year during which we lose our qualification. It is not possible to state
whether, in all circumstances, we will be entitled to this statutory relief.
Taxation of Stockholders
Taxation of Taxable U.S. Stockholders
The following is a summary of certain U.S. federal income tax consequences of the ownership and disposition of our stock
applicable to taxable U.S. stockholders. A “U.S. stockholder” is any holder of our common stock that is, for U.S. federal income tax
purposes:
•
an individual who is a citizen or resident of the United States;
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•
a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in the
United States or under the laws of the United States, or of any state thereof, or the District of Columbia;
•
an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its
source; or
•
a trust if a U.S. court is able to exercise primary supervision over the administration of such trust and one or more
U.S. fiduciaries have the authority to control all substantial decisions of the trust.
If a partnership, including for this purpose any entity that is treated as a partnership for U.S. federal income tax purposes, holds
our common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the
activities of the partnership. An investor that is a partnership and the partners in such partnership are urged to consult their tax
advisors about the U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock.
Distributions
For such time as we qualify to be taxed as a REIT, the distributions that we make to our taxable U.S. stockholders out of current
or accumulated earnings and profits (as determined for U.S. federal income tax purposes) that we do not designate as capital gain
dividends will generally be taken into account by such stockholders as ordinary income and will not be eligible for the dividends
received deduction for corporations. With limited exceptions, our dividends are not eligible for taxation at the preferential income tax
rates ( i.e ., the 20% maximum U.S. federal rate) for qualified dividends received by most U.S. stockholders that are individuals, trusts
or estates from taxable C corporations. Such stockholders, however, are taxed at the preferential rates on dividends designated by and
received from REITs to the extent that the dividends are attributable to:
•
income retained by the REIT in the prior taxable year on which the REIT was subject to corporate level income tax
(less the amount of tax);
•
dividends received by the REIT from TRSs or other taxable C corporations; or
•
income in the prior taxable year from sales of “built-in gain” property acquired by the REIT from C corporations in
carryover basis transactions (less the amount of corporate tax on such income).
Distributions that we designate as capital gain dividends will generally be taxed to our U.S. stockholders as long-term capital
gains, to the extent that such distributions do not exceed our actual net capital gain for the taxable year (and for taxable years
beginning after December 31, 2015, may not exceed our dividends paid for the taxable year, including dividends paid the following
year that are treated as paid in the current year), without regard to the period for which the stockholder that receives such distribution
has held its stock. We may elect to retain and pay taxes on some or all of our net long-term capital gains, in which case we may elect
to apply provisions of the Code that treat our U.S. stockholders as having received, solely for tax purposes, our undistributed capital
gains, and the stockholders as receiving a corresponding credit for taxes that we paid on such undistributed capital gains. See
“—Taxation of REITs in General—Annual Distribution Requirements.” Corporate stockholders may be required to treat up to 20% of
some capital gain dividends as ordinary income. Long-term capital gains are generally taxable at maximum U.S. federal rates of 20%
in the case of U.S. stockholders that are individuals, trusts and estates, and 35% in the case of U.S. stockholders that are corporations.
Capital gains attributable to the sale of depreciable real property held for more than twelve months are subject to a 25% maximum
U.S. federal income tax rate for taxpayers who are taxed as individuals, to the extent of previously claimed depreciation deductions.
Distributions in excess of our current and accumulated earnings and profits (as determined for U.S. federal income tax purposes)
will generally represent a return of capital and will not be taxable to a stockholder to the extent that the amount of such distributions
does not exceed the adjusted basis of the stockholder’s shares in
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respect of which the distributions were made. Rather, the distribution will reduce the adjusted basis of the stockholder’s shares. To the
extent that such distributions exceed the adjusted basis of a stockholder’s shares, the stockholder generally must include such
distributions in income as long-term capital gain if the shares have been held for more than one year, or short-term capital gain if the
shares have been held for one year or less. In addition, any dividend that we declare in October, November or December of any year
and that is payable to a stockholder of record on a specified date in any such month will be treated as both paid by us and received by
the stockholder on December 31 of such year, provided that we actually pay the dividend before the end of January of the following
calendar year.
To the extent that we have available net operating losses and capital losses carried forward from prior tax years, such losses may
reduce the amount of distributions that we must make in order to comply with the REIT distribution requirements. See “—Taxation of
REITs in General—Annual Distribution Requirements.” Such losses, however, are not passed through to stockholders and do not
offset income of stockholders from other sources, nor would such losses affect the character of any distributions that we make, which
are generally subject to tax in the hands of stockholders to the extent that we have current or accumulated earnings and profits.
Dispositions of Our Stock
If a U.S. stockholder sells or disposes of shares of our stock, it will generally recognize gain or loss for U.S. federal income tax
purposes in an amount equal to the difference between the amount of cash and the fair market value of any property received on the
sale or other disposition and the stockholder’s adjusted tax basis in the shares of stock. In general, capital gains recognized by
individuals, trusts or estates upon the sale or disposition of our stock will be subject to a maximum U.S. federal income tax rate of
20% if the stock is held for more than one year, and will be taxed at ordinary income rates (of up to 39.6%) if the stock is held for one
year or less. Gains recognized by stockholders that are corporations are subject to U.S. federal income tax at a maximum rate of 35%,
whether or not such gains are classified as long-term capital gains. Capital losses recognized by a stockholder upon the disposition of
our stock that was held for more than one year at the time of disposition will be considered long-term capital losses, and are generally
available only to offset capital gain income of the stockholder but not ordinary income (except in the case of individuals, who may
also offset up to $3,000 of ordinary income each year). In addition, any loss upon a sale or exchange of shares of our stock by a
stockholder who has held the shares for six months or less, after applying holding period rules, will be treated as a long-term capital
loss to the extent of actual or deemed distributions that we make that are required to be treated by the stockholder as long-term capital
gain.
If an investor recognizes a loss upon a subsequent disposition of our stock or other securities in an amount that exceeds a
prescribed threshold, it is possible that the provisions of Treasury regulations involving “reportable transactions” could apply, with a
resulting requirement to separately disclose the loss-generating transaction to the IRS. These regulations, though directed towards “tax
shelters,” are broadly written and apply to transactions that would not typically be considered tax shelters. The Code imposes
significant penalties for failure to comply with these requirements. You are urged to consult with your tax advisor concerning any
possible disclosure obligation with respect to the receipt or disposition of our stock or securities or transactions that we might
undertake directly or indirectly. Moreover, you should be aware that we and other participants in the transactions in which we are
involved (including their advisors) might be subject to disclosure or other requirements pursuant to these regulations.
Passive Activity Losses and Investment Interest Limitations
Distributions that we make and gains arising from the sale or exchange by a U.S. stockholder of our stock will not be treated as
passive activity income. As a result, stockholders will not be able to apply any “passive losses” against income or gain relating to our
stock. To the extent that distributions we make do not constitute a return of capital, they will be treated as investment income for
purposes of computing the investment interest limitation.
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Taxation of Non-U.S. Stockholders
The following is a summary of certain U.S. federal income and estate tax consequences of the ownership and disposition of our
stock applicable to non-U.S. stockholders. A “non-U.S. stockholder” is any holder of our common stock other than a partnership or
U.S. stockholder.
Ordinary Dividends
The portion of dividends received by non-U.S. stockholders that (1) is payable out of our earnings and profits, (2) is not
attributable to capital gains that we recognize and (3) is not effectively connected with a U.S. trade or business of the non-U.S.
stockholder, will be subject to U.S. withholding tax at the rate of 30%, unless reduced or eliminated by treaty.
In general, non-U.S. stockholders will not be considered to be engaged in a U.S. trade or business solely as a result of their
ownership of our stock. In cases where the dividend income from a non-U.S. stockholder’s investment in our stock is, or is treated as,
effectively connected with the non-U.S. stockholder’s conduct of a U.S. trade or business, the non-U.S. stockholder will generally be
subject to U.S. federal income tax at graduated rates, in the same manner as U.S. stockholders are taxed with respect to such
dividends. Such effectively connected income must generally be reported on a U.S. income tax return filed by or on behalf of the
non-U.S. stockholder. The income may also be subject to a branch profits tax at the rate of 30% (unless reduced or eliminated by
treaty) in the case of a non-U.S. stockholder that is a corporation.
Non-Dividend Distributions
Unless our stock constitutes a U.S. real property interest (“USRPI”), distributions that we make which are not dividends out of
our earnings and profits will not be subject to U.S. income tax. If we cannot determine at the time a distribution is made whether or
not the distribution will exceed current and accumulated earnings and profits, the distribution will be subject to withholding at the rate
applicable to dividends. The non-U.S. stockholder may seek a refund from the IRS of any amounts withheld if it is subsequently
determined that the distribution was, in fact, in excess of our current and accumulated earnings and profits. If our stock constitutes a
USRPI, as described below, distributions that we make in excess of the sum of (1) the stockholder’s proportionate share of our
earnings and profits, plus (2) the stockholder’s basis in its stock, will be taxed under the Foreign Investment in Real Property Tax Act
of 1980 (“FIRPTA”), at the rate of tax, including any applicable capital gains rates, that would apply to a U.S. stockholder of the same
type ( i.e. , an individual or a corporation, as the case may be), and the collection of the tax will be enforced by a withholding at a rate
of 10% of the amount by which the distribution exceeds the stockholder’s share of our earnings and profits.
Capital Gain Dividends
Under FIRPTA, a distribution that we make to a non-U.S. stockholder, to the extent attributable to gains from dispositions of
USRPIs that we held directly or through pass-through subsidiaries, or USRPI capital gains, will, except as described below, be
considered effectively connected with a U.S. trade or business of the non-U.S. stockholder and will be subject to U.S. income tax at
the rates applicable to U.S. individuals or corporations, without regard to whether we designate the distribution as a capital gain
dividend. See “—Ordinary Dividends,” for a discussion of the consequences of income that is effectively connected with a U.S. trade
or business. In addition, we will be required to withhold tax equal to 35% of the maximum amount that could have been designated as
USRPI capital gain dividends. Distributions subject to FIRPTA may also be subject to a branch profits tax at the rate of 30% (unless
reduced or eliminated by treaty) in the hands of a non-U.S. stockholder that is a corporation. A distribution is not attributable to
USRPI capital gain if we held an interest in the underlying asset solely as a creditor. Capital gain dividends received by a non-U.S.
stockholder that are attributable to dispositions of our assets other than USRPIs are not subject to U.S. federal income or withholding
tax, unless (1) the gain is effectively connected with the non-U.S. stockholder’s U.S. trade or business, in which case the
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non-U.S. stockholder would be subject to the same treatment as U.S. stockholders with respect to such gain, except that a non-U.S.
stockholder that is a corporation may also be subject to a branch profits tax at the rate of 30% (unless reduced or eliminated by treaty)
or (2) the non-U.S. stockholder is a nonresident alien individual who was present in the United States for 183 days or more during the
taxable year and has a “tax home” in the United States, in which case the non-U.S. stockholder will incur a 30% tax on his capital
gains. We expect that a significant portion of our assets will be USRPIs.
A capital gain dividend that would otherwise have been treated as a USRPI capital gain will not be so treated or be subject to
FIRPTA, and will generally not be treated as income that is effectively connected with a U.S. trade or business, but instead will be
treated in the same manner as an ordinary dividend (see “—Ordinary Dividends”), if (1) the capital gain dividend is received with
respect to a class of stock that is regularly traded on an established securities market located in the United States and (2) the recipient
non-U.S. stockholder does not own more than 10% of that class (or, for the distributions that are deductible to us in a taxable year
ending before December 19, 2015, more than 5% of that class) at any time during the year ending on the date on which the capital
gain dividend is received. We anticipate that our common stock will be “regularly traded” on an established securities exchange. In
addition, distributions to certain non-U.S. publicly traded shareholders that meet certain record-keeping and other requirements
(“qualified shareholders”) are exempt from FIRPTA, except to the extent owners of such qualified shareholders that are not also
qualified shareholders own, actually or constructively, more than 10% of our common stock. Furthermore, distributions to qualified
foreign pension funds” or entities all of the interests of which are held by “qualified foreign pension funds” are exempt from FIRPTA.
Non-U.S. holders are urged to consult their tax advisors regarding the application of these rules.
Dispositions of Our Stock
Unless our stock constitutes a USRPI, a sale of our stock by a non-U.S. stockholder will generally not be subject to U.S. taxation
under FIRPTA. Subject to certain exceptions discussed below, our stock will be treated as a USRPI if 50% or more of our assets
throughout a prescribed testing period consist of interests in real property located within the United States, excluding, for this purpose,
interests in real property solely in a capacity as a creditor. We expect that 50% or more of our assets will consist of USRPIs.
Even if the foregoing 50% test is met, however, our stock will not constitute a USRPI if we are a “domestically controlled
qualified investment entity.” A domestically controlled qualified investment entity includes a REIT, less than 50% of value of which
is held, directly or indirectly, by non-U.S. stockholders at all times during a specified testing period. As described above, our charter
contains restrictions designed to protect our status as a “domestically controlled qualified investment entity,” and we believe that we
will be and will remain, a domestically controlled qualified investment entity, and that a sale of our stock should not be subject to
taxation under FIRPTA. However, no assurance can be given that we will be or will remain a domestically controlled qualified
investment entity.
In the event that we are not a domestically controlled qualified investment entity, but our stock is “regularly traded,” as defined
by applicable Treasury regulations, on an established securities market, a non-U.S. stockholder’s sale of our common stock
nonetheless also would not be subject to tax under FIRPTA as a sale of a USRPI, provided that the selling non-U.S. stockholder held
10% or less of our outstanding common stock at any time during a prescribed testing period. We expect that our common stock will be
regularly traded on an established securities market.
In addition, dispositions of our common stock by qualified shareholders are exempt from FIRPTA, except to the extent owners
of such qualified shareholders that are not also qualified shareholders own, actually or constructively, more than 10% of our common
stock. An actual or deemed disposition of our capital stock by such shareholders may also be treated as a dividend. Furthermore,
dispositions of our capital stock by “qualified foreign pension funds” or entities all of the interests of which are held by “qualified
foreign pension funds” are exempt from FIRPTA. Non-U.S. holders are urged to consult their tax advisors regarding the application of
these rules.
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If gain on the sale of our stock were subject to taxation under FIRPTA, the non-U.S. stockholder would be required to file a U.S.
federal income tax return and would be subject to the same treatment as a U.S. stockholder with respect to such gain, subject to
applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. Moreover, in
order to enforce the collection of the tax, the purchaser of the stock could be required to withhold 10% (15% for dispositions occurring
after February 16, 2016) of the purchase price and remit such amount to the IRS.
Gain from the sale of our stock that would not otherwise be subject to FIRPTA will nonetheless be taxable in the United States
to a non-U.S. stockholder in two cases: (1) if the non-U.S. stockholder’s investment in our stock is effectively connected with a U.S.
trade or business conducted by such non-U.S. stockholder, the non-U.S. stockholder will be subject to the same treatment as a U.S.
stockholder with respect to such gain, except that a non-U.S. stockholder that is a corporation may also be subject to a branch profits
tax at a rate of 30% (unless reduced or eliminated by treaty) or (2) if the non-U.S. stockholder is a nonresident alien individual who
was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States, the
nonresident alien individual will be subject to a 30% tax on the individual’s capital gain. In addition, even if we are a domestically
controlled qualified investment entity, upon disposition of our stock (subject to the 10% exception applicable to “regularly traded”
stock described above), a non-U.S. stockholder may be treated as having gain from the sale or exchange of a USRPI if the non-U.S.
stockholder (a) disposes of our common stock within a 30-day period preceding the ex-dividend date of a distribution, any portion of
which, but for the disposition, would have been treated as gain from the sale or exchange of a USRPI and (b) acquires, or enters into a
contract or option to acquire, other shares of our common stock within 30 days after such ex-dividend date.
Non-U.S. stockholders are urged to consult their tax advisors regarding the U.S. federal, state, local and foreign income and
other tax consequences of owning our stock.
Taxation of Tax-Exempt Stockholders
Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally
are exempt from U.S. federal income taxation. However, they may be subject to taxation on their unrelated business taxable income
(“UBTI”). While some investments in real estate may generate UBTI, the IRS has ruled that dividend distributions from a REIT to a
tax-exempt entity do not constitute UBTI. Based on that ruling, and provided that (1) a tax-exempt stockholder has not held our stock
as “debt financed property” within the meaning of the Code ( i.e. , where the acquisition or holding of the property is financed through
a borrowing by the tax-exempt stockholder) and (2) our stock is not otherwise used in an unrelated trade or business, distributions that
we make and income from the sale of our stock generally should not give rise to UBTI to a tax-exempt stockholder.
Tax-exempt stockholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit
trusts, and qualified group legal services plans exempt from U.S. federal income taxation under sections 501(c)(7), (c)(9), (c)(17) and
(c)(20) of the Code are subject to different UBTI rules, which generally require such stockholders to characterize distributions that we
make as UBTI.
In certain circumstances, a pension trust that owns more than 10% of our stock could be required to treat a percentage of any
dividends received from us as UBTI if we are a “pension-held REIT.” We will not be a pension-held REIT unless (1) we are required
to “look through” one or more of our pension trust stockholders in order to satisfy the REIT “closely held” test and (2) either (a) one
pension trust owns more than 25% of the value of our stock or (b) one or more pension trusts, each individually holding more than
10% of the value of our stock, collectively own more than 50% of the value of our stock. Certain restrictions on ownership and
transfer of shares of our stock generally should prevent a tax-exempt entity from owning more than 10% of the value of our stock and
generally should prevent us from becoming a pension-held REIT.
Tax-exempt stockholders are urged to consult their tax advisors regarding the U.S. federal, state, local and foreign income and
other tax consequences of owning our stock.
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Other Tax Considerations
Legislative or Other Actions Affecting REITs
The present U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial
or administrative action at any time. The REIT rules are constantly under review by persons involved in the legislative process and by
the IRS and the Treasury, which review may result in statutory changes as well as revisions to regulations and interpretations. Changes
to the U.S. federal tax laws and interpretations thereof could adversely affect an investment in our common stock.
Medicare 3.8% Tax on Investment Income
Certain U.S. stockholders who are individuals, estates or trusts and whose income exceeds certain thresholds will be required to
pay a 3.8% Medicare tax on dividends and certain other investment income, including capital gains from the sale or other disposition
of our common stock.
Foreign Account Tax Compliance Act
Legislation enacted in 2010 and existing guidance issued thereunder requires withholding at a rate of 30% on dividends in
respect of, and, after December 31, 2016, gross proceeds from the sale of, our common stock held by or through certain foreign
financial institutions (including investment funds), unless such institution enters into an agreement with the Treasury to report, on an
annual basis, information with respect to shares in the institution held by certain U.S. persons and by certain non-U.S. entities that are
wholly or partially owned by U.S. persons and to withhold on certain payments. An intergovernmental agreement between the United
States and an applicable foreign country, or future Treasury regulations or other guidance may modify these requirements.
Accordingly, the entity through which our common stock is held will affect the determination of whether such withholding is required.
Similarly, dividends in respect of, and gross proceeds from the sale of, our common stock held by an investor that is a nonfinancial
non-U.S. entity that does not qualify under certain exemptions will be subject to withholding at a rate of 30%, unless such entity either
(1) certifies to us that such entity does not have any “substantial United States owners” or (2) provides certain information regarding
the entity’s “substantial United States owners,” which we will in turn provide to the IRS. We will not pay any additional amounts to
stockholders in respect of any amounts withheld. Non-U.S. stockholders are encouraged to consult their tax advisors regarding the
possible implications of the legislation on their investment in our common stock.
State, Local and Foreign Taxes
We and our subsidiaries and stockholders may be subject to state, local or foreign taxation in various jurisdictions including
those in which we or they transact business, own property or reside. Our state, local or foreign tax treatment and that of our
stockholders may not conform to the U.S. federal income tax treatment discussed above. Any foreign taxes that we incur do not pass
through to stockholders as a credit against their U.S. federal income tax liability. Prospective investors are urged to consult their tax
advisors regarding the application and effect of state, local and foreign income and other tax laws on an investment in our stock.
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PLAN OF DISTRIBUTION
We may sell the securities offered by this prospectus in any one or more of the following ways from time to time:
•
directly to investors, including through a specific bidding, auction or other process;
•
to investors through agents;
•
directly to agents;
•
to or through brokers or dealers;
•
to the public through underwriting syndicates led by one or more managing underwriters;
•
to one or more underwriters acting alone for resale to investors or to the public;
•
through a combination of any such methods of sale; or
•
any other method permitted pursuant to applicable law.
We may also sell the securities offered by this prospectus in “at the market offerings” within the meaning of Rule 415(a)(4)
under the Securities Act of 1933, as amended (the “Securities Act”), to or through a market maker or into an existing trading market,
on an exchange or otherwise.
The accompanying prospectus supplement will set forth the terms of the offering and the method of distribution and will identify
any firms acting as underwriters, dealers or agents in connection with the offering, including:
•
the name or names of any underwriters, dealers or agents;
•
the purchase price of the securities and the proceeds to us from the sale;
•
any over-allotment options under which the underwriters may purchase additional securities from us;
•
any underwriting discounts and other items constituting compensation to underwriters, dealers or agents;
•
any public offering price;
•
any discounts or concessions allowed or reallowed or paid to dealers; or
•
any securities exchange or market on which the securities offered in the prospectus supplement may be listed.
Only those underwriters identified in such prospectus supplement are deemed to be underwriters in connection with the
securities offered in the prospectus supplement. Any underwritten offering may be on a best efforts or a firm commitment basis.
The distribution of the securities may be effected from time to time in one or more transactions at a fixed price or prices, which
may be changed, at varying prices determined at the time of sale, or at prices determined as the applicable prospectus supplement
specifies. The securities may be sold through a rights offering, forward contracts or similar arrangements.
In connection with the sale of the securities, underwriters, dealers or agents may be deemed to have received compensation from
us in the form of underwriting discounts or commissions and also may receive commissions from securities purchasers for whom they
may act as agent. Underwriters may sell the securities to or through dealers, and the dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters or commissions from the purchasers for whom they may act as agent.
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We will provide in the applicable prospectus supplement information regarding any underwriting discounts or other
compensation paid to underwriters or agents in connection with the securities offering, and any discounts, concessions or commissions
which underwriters allow to dealers. Underwriters, dealers and agents participating in the securities distribution may be deemed to be
underwriters, and any discounts and commissions they receive and any profit they realize on the resale of the securities may be
deemed to be underwriting discounts and commissions under the Securities Act. Underwriters and their controlling persons, dealers
and agents may be entitled, under agreements entered into with us, to indemnification against and contribution toward specific civil
liabilities, including liabilities under the Securities Act.
Any common stock sold pursuant to a prospectus supplement will be listed on the NASDAQ Global Select Market, subject to
official notice of issuance. We may elect to list any series of preferred stock on an exchange, but we are not obligated to do so. It is
possible that one or more underwriters may make a market in the securities, but such underwriters will not be obligated to do so and
may discontinue any market making at any time without notice. No assurance can be given as to the liquidity of, or the trading market
for, any offered securities.
In connection with an offering, the underwriters may purchase and sell securities in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of securities than they are required to purchase in an offering. Stabilizing transactions consist of bids
or purchases made for the purpose of preventing a decline in the market price of the securities while an offering is in progress. The
underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the
underwriting discount received by it because the underwriters have repurchased securities sold by or for the account of that
underwriter in stabilizing or short-covering transactions. These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the securities. As a result, the price of the securities may be higher than the price that otherwise might exist
in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. Underwriters may
engage in over-allotment. If any underwriters create a short position in the securities in an offering in which they sell more securities
than are set forth on the cover page of the applicable prospectus supplement, the underwriters may reduce that short position by
purchasing the securities in the open market.
Underwriters, dealers or agents that participate in the offer of securities, or their affiliates or associates, may have engaged or
engage in transactions with and perform services for, us or our affiliates in the ordinary course of business for which they may have
received or receive customary fees and reimbursement of expenses.
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LEGAL MATTERS
Unless otherwise indicated in the applicable prospectus supplement, certain legal matters regarding the validity of the securities
offered by this prospectus will be passed upon for us by O’Melveny & Myers LLP, Newport Beach, California and by DLA Piper LLP
(US), Baltimore, Maryland, with respect to matters of Maryland law. In addition, the description of material federal income tax
consequences contained in this prospectus under the heading “U.S. Federal Income Tax Considerations” is based upon the opinion of
Kirkland & Ellis LLP. Any underwriters will be advised about legal matters by their own counsel, who will be named in the applicable
prospectus supplement.
EXPERTS
The consolidated and combined financial statements of CareTrust REIT, Inc. appearing in CareTrust REIT, Inc.’s Annual Report
(Form 10-K) for the year ended December 31, 2014 (including the schedule appearing therein) have been audited by Ernst & Young
LLP, independent registered public accounting firm, as set forth in their report thereon, included therein, and incorporated herein by
reference. Such consolidated and combined financial statements are incorporated herein by reference in reliance upon the report given
on the authority of such firm as experts in accounting and auditing.
The financial statements and the related financial statement schedule of Ensign Properties incorporated in this prospectus by
reference from CareTrust REIT, Inc.’s Annual Report on Form 10-K have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report incorporated herein by reference, which report expresses an unqualified
opinion on the financial statements and financial statement schedule and includes an explanatory paragraph referring to related party
transactions with The Ensign Group, Inc. Such financial statements and financial statement schedule have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Pristine Ohio Holdings, LLC and subsidiaries appearing in Amendment No. 1 to
CareTrust REIT, Inc.’s Current Report on Form 8-K filed with the SEC on December 17, 2015 have been audited by Bradley &
Associates, Inc., public accounting firm, as set forth in their report therein, and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance on the report of such firm given upon its authority as experts in
accounting and auditing.
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8,500,000 Shares
CareTrust REIT, Inc.
Common Stock
PROSPECTUS SUPPLEMENT
KeyBanc Capital Markets
Wells Fargo Securities
BMO Capital Markets
Raymond James
Barclays
RBC Capital Markets
Canaccord Genuity
Capital One Securities
Fifth Third Securities
March 21, 2016